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Monday, November 3, 2014

Five Common Mistakes Real Estate Buyers Should Avoid

Deciding to buy a home or property is one of the biggest financial decisions most people make. But there are also many common pitfalls for veteran and first-time investors. Financial expert Mark Lamkin from Lamkin Wealth Management explains the five common mistakes to avoid when investing in real estate.

  • Mistake 1. Lack Of Research: 

Before most individuals buy a car or a television set they compare different models, ask a lot of questions and try to determine whether what they are about to purchase is indeed worth the money. The due diligence that goes into purchasing a home should be even more rigorous.

There are also research considerations for each type of real estate investor - whether a personal homeowner, a future landlord, a flipper or a land developer. (If you're flipping houses, check out Fix It And Flip It: The Value of Remodeling, Five Mistakes That Make House Flipping A Flop and Top 5 Must-Haves For Flipping Houses.)

Not only must the prospective buyer ask a lot of questions about the home, but he or she should also inquire about the area (neighborhood) in which it is located. (After all, what good is a nice home if just around the corner is a college frat house known for its all-night keg parties? Unless of course, you're attracting a student renter.)

The following is a list of questions that would-be investors should ask regarding the home in question:

  1. Is the property built in the vicinity of a commercial site, or will long-term construction be occurring in the near future?
  2. Does the property reside in a flood zone or in a problematic area, such as ones known for radon or termite problems?
  3. Does the house have foundation or permit "issues" that will need to be addressed?
  4. What is new in the house and what must be replaced?
  5. Why is the homeowner selling?
  6. What did he or she pay for the home and when?
  7. If you are moving into a new town, are there any problem areas in town?


  • Mistake 2. Getting Lousy Financing

Though the real estate bubble in North America ostensibly popped in 2007, there are still a large number of exotic mortgage options. The purpose of these mortgages is to allow buyers to get into certain homes that they might not otherwise have been able to afford using a more conventional, 25-year mortgage agreement.

Unfortunately, many buyers who secure adjustable/variable loans or interest-only loans eventually pay the price when interest rates rise. The point is that home buyers should make sure that they have the financial flexibility to make the payments (if rates go up). Or they should have a back-up plan to convert to a more conventional fixed-rate mortgage down the line.

  • Mistake 3: Doing Everything on Your Own

Many buyers think that they know it all, or that they can close a real estate transaction on their own. While they might have completed a number of deals in the past that went well, the process may not go as smoothly in a down market - and there is no one you can turn to if you want to fix an unfavorable real estate deal.

Real estate investors should tap every possible resource and befriend experts that can help them make the right purchase. A list of the potential experts should, at a minimum include a savvy real estate agent, a competent home inspector, a handyman, a good attorney and an insurance representative. These experts should be capable enough to alert the investor to any flaws in the home or neighborhood. Or, in the case of an attorney, he or she may be able to alert the home buyer to any defects in the title or easements that could come back to haunt them down the line.

  • Mistake 4: Overpaying

This issue is somewhat tied into the point about doing research. Searching for the right home can be a time-consuming and frustrating process. And when a prospective buyer finally finds a house that actually meets his or her needs/wants, the buyer is naturally anxious to have the seller accept the bid.

The problem with being anxious is that anxious buyers tend to overbid on properties. Overbidding on a house can have a waterfall effect of problems. Buyers may end up overextending themselves and taking on too much debt, creating higher payments than they can afford.; as a result, it may take years for the home buyer to recoup this investment.

Are You Overpaying? To find out whether your dream investment has a high price tag, start by searching what other similar homes in the area have sold for in recent months. Any real estate broker should be able to provide this information with relative ease (particularly with their access to a multiple listing real estate agent database). But as a fallback, or if you are not using a realtor's services, simply look at comparable homes in the local newspaper, and see what they are being offered for. Logic should dictate that unless the home has unique characteristics that are likely to enhance its value over time, the buyer should try to keep any bids consistent with other home sales in the neighborhood.

Buyers should realize that there are always other opportunities out there, and that even if the negotiation process becomes bogged down or fails, the odds are in their favor that there is another home out there that will meet their needs. It's just a matter of being patient in the searching process.

  • Mistake 5: Underestimating Expenses

Every homeowner can attest to the fact that there is way more to owning a house than just making the mortgage payment. Unlike renting, there are maintenance expenses that go along with mowing the lawn, painting the shed and tending the garden. Then there are the costs associated with furnishing the house and keeping all of the appliances (such as the oven, washer/dryer, refrigerator and the furnace) running, not to mention the cost of installing a new roof, making structural changes to the house, or other little things like insurance and property taxes.

Sunday, November 2, 2014

Ten Tips Toward a Quality Offer on a Home

For an agent to display an offer to purchase can be very telling, because that form is one to become very familiar with, before you are even close to signing one.
It is a positive sign when an agent educates you. That form can be stressful and scary, or it can be exciting and satisfying. The difference is what you know about how you got to this point and making wise choices; choices based on facts and emotional restraint.

Unfortunately, "fear of loss" is one of the reasons buyers choose a home. There will be another home coming along if you are not successful on one.

To become comfortable with the form before you get involved with the details of signing an offer is a good example of "what you know."

Do not wait until an agent is asking you to sign this document to read it for the first time. Ask an agent you interview to provide a copy of the "offer to purchase" form so you can prepare for the time to negotiate, then reserve a time to read it.

Have a notepad to write questions down about the purpose of certain clauses or when the meaning is not clear.

Read every document in advance of signing in a real estate transaction. Technology has made it convenient to share documents electronically.

While completing documents at the kitchen table or the hood of a car can be very convenient, today there is no reason for not reading them in advance.

We are all accustomed to agreeing to "terms of use" without reading them when we sign into websites, but it is much more personal and perilous when buying and selling real estate.

Ask questions you have by using email. There are a number of reasons for this approach:

  • You and the agent can dialogue when it is convenient for both of you.
  • You gain time to consider implications in the document's words before you sign it.
  • Writing questions down and answering them in writing commits each party to communicate clearly.
  • It is more memorable than conversation.
  • It is easy to store the information for future reference.

There is an old far-Eastern proverb that will help you apply this practice to your process, "The strongest memory is no match for the weakest ink."

Remember that your offer becomes a contract of sale when accepted as written. You do not want to leave any question unanswered unless you have protection with a well-written contingency.

Understanding the language and reviewing the offer beforehand should help reduce last-minute concerns and surprises. Here are just a few of many important subjects:

  • Agency disclosure
  • The proposed price
  • Contingencies
  • What personal property or fixtures is included, or not, in the sale
  • Deadlines
  • Penalties
  • Representations of known defects
  • Can the buyer force the closing when the seller reneges? Can the seller sue for specific performance if the buyer fails to close?
  • What if there is a fire?

When you are selecting an agent to help you find your home, observe how the agent reacts to your question about providing documents in advance.

If they see part of their job is to prepare you for what is to come, they may be a good choice.
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