5 Signs a Foreclosure is a Good Deal

By Leonard P. Baron, MBA, CPA and author of “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate” – http://www.ProfessorBaron.com and a Guest Blogger at Your Edge in Real Estate – Zillow.com

If you want to take advantage of the market and try to pick up a great deal on a foreclosure, and yes, you have enough credit or cash, there are few things you should know before making a purchase.

First of all, what is a foreclosure? It’s a bank-owned property, commonly called real estate owned (REO). For whatever reason, the original owner stopped paying their mortgage so the lender (e.g., Bank of America, Wells Fargo, Fannie Mae, etc.) legally repossessed the property and took ownership.

Next, it will be listed for sale by a local real estate sales professional in the Multiple Listing Service (MLS) along with listings of traditional sales and short sales. We are not talking about properties sold via a foreclosure auction at the county courthouse; those make up a very very small percentage of bona fide real estate sales to third-party buyers like you. Plus, they are extremely high risk, so let’s leave those to the pros who take huge risks.

When Foreclosure is Not a Good Deal

To learn more, here’s the rest of the article that I wrote for Zillow. So grab this link and read-away…..Thanks and have a great day. Leonard

http://www.zillow.com/blog/2011-08-01/5-signs-a-foreclosure-is-a-good-deal/

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Bank Owned Homes

By Leonard Baron MBA, CPA, San Diego State University Lecturer and                                 Wendy Mihm, founder of FinancialRx.com – July 18, 2011

“Bank owned home sales” seems to be a topic that keeps cropping up all over the news lately. But what does that term actually mean and how does it impact you if you’re interested in buying real estate?

Definition of a Bank Owned Home

A bank owned home sale is very unfortunate for the existing (soon to be “former”) homeowner, and it occurs when the bank has foreclosed upon the property and taken ownership of the home. These situations are commonly called “foreclosures” or “Real Estate Owned” sales (REOs). The bank owned homes will be processed through the bank’s system, and an agreement will be made to sell it with a local real estate sales professional. That professional will list the home for sale on the local area Multiple Listing Service (MLS), so that any real estate agent may bring an offer on behalf of their client to purchase the property.

Things To Beware of When You Buy Foreclosed Homes

Now the property joins the MLS pool with all the traditional listings that have for sale signs in the front yard. There is nothing wrong with buying a bank owned home. Sure, the home may be in bad shape or damaged by the prior owner, but it could also be in fine shape or only need a little bit of work. So as an individual interested in buying real estate, you should do your due diligence on these, just as you would with any other property, with perhaps just a little extra caution. There’s always the possibility that the financial distress that led to the foreclosure also led to some neglect of the property.

CAUTION: There Is One Big Difference When Buying a Foreclosed Home

Now, in California and many other states, there is a big difference when you buy foreclosure homes. With a traditional sale, even if they are selling it as-is, they still need to disclose any known defects with the property – like a slab crack or unpermitted additions. Bank owned homes, since the bank has never occupied it, do not come with the disclosure – commonly called at Transfer Disclosure Statement (TDS) – because the bank doesn’t really have knowledge of any issues.

So you are truly taking the house AS IS. And while there may be issues with the property, a little caution up front can help reduce your risk.

Mitigate Your Biggest Risks

First, of course, have a home inspector look at the property and prepare a report on his or her findings. Next, check with the county for any code violations or known defects. And if it is in a Common Interest Development (HOA), you can also check with them for any issues.

And as with any property, once you have it under contract, you should also check the title report for issues, a Natural Hazard Disclosure Report (NHD) for flood plains, earthquake zones, chemical contamination, etc. You can also check and with the insurance company for past insurance claims. There are several other checks and reports you can get – talk to your real estate professional about these, and work with them to determine what you need.

The biggest risk you face is the condition of the property. So if it needs work, just make sure you get some bids from contractors, don’t take your own guess or a non-professional’s advice on what the repairs will cost. Individuals typically under estimate the costs and time frame associated with renovating property by a lot! So be meticulous and take the time to really figure out the details up front. Then add a generous contingency, like 50%+ to your estimates.

That 50% covers all the items you didn’t think about when you were considering the purchase, but now that you own it, you’ve decided you’d like to add all kinds of extra details “now we’re having work done…”

Buying foreclosures can be just a good as traditional home sales, just make sure you understand the true condition of the property, and do the proper due diligence up front.

Now go help the economy by purchasing your dream bank owned home!

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Author Leonard P. Baron, MBA, CPA, is a real estate lecturer at San Diego State University, a long term residential real estate investor and author of Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate.
You can learn more about him and get his free – “Real Estate Buying Due Diligence Checklist” at professorbaron.com – under Chapter 1 – Due Diligence (no sign up or registration needed, just download it for free!)

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Get the Best from Your Homeowners Insurance – Give it an Annual Checkup!

By Leonard Baron, MBA, CPA, and author of Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate and                                                             Wendy Mihm, founder of FinancialRx.com

Annually you go to the doctor and the dentist, but what about your property and liability insurance professional? Do you consult with that person on a yearly basis too?

Being fiscally fit is almost as important as being physically fit, so why not make sure you’re getting the best from your homeowners insurance, just in case a financial issue arises? That issue could be any number of things: your house could catch on fire, a broken water line could cause a flood, or your Chihuahua could bite a neighbor’s child.

Taking the time to review your homeowners or landlord insurance policy to make sure you’re fiscally fit is a relatively simple exercise – no pun intended – that everyone should do each year.

In this article, we will address 3 main topics:

1.  The various categories of a standard homeowners insurance policy

2.  The most important categories to analyze

3.  Other coverage types you may want to consider adding to your policy

What is Covered by Your Policy?

A typical homeowners policy has a single “Coverage Limits” page that notes the maximum amount an insurer will pay out on each category of risk in case of loss. Let’s look at the top ones:

Building/Dwelling – This covers the main building structure, walls, roof, doors, windows, kitchen, etc. I purchased my house of 1,300 square feet for $500,000 but I only have $200/psf worth of coverage, or $260,000+- maximum loss payout. The rest of the value relates to land $240,000 +- which typically doesn’t need insurance. Rule of thumb: have a big fancy house, have more coverage.

The most important thing you can do each year to get the best from your homeowners insurance is to meet with your insurance agent and make sure that the current coverage amount for Building /Dwelling is enough to pay to rebuild your home in case it is destroyed. You should also discuss “Extended Replacement Coverage” and “Building Ordinance Upgrade” coverage, too, so as to make sure you are fully protected.

Personal Property Coverage – Your insurance also covers personal property (i.e., clothing, computers, couches, flatware, etc.) which costs more than you think to replace. Make sure you have sufficient coverage by discussing this topic with your agent. Special items (i.e., coins, jewelry, paintings, etc.)  need to be reviewed and probably separately insured.

Liability Protection – Most people don’t know that homeowners insurance typically covers you if you get sued for a dog bite or injury on your property. Typical coverage is $100,000 or $300,000 and that should be enough if your net worth is that amount or less. If you have significant net worth, consider an “Umbrella” policy to bump liability coverage to $1 Million+ for about $400 per year. That’s a small expense to protect your wealth!

Other Coverage Types – Generally you should have your agent explain each coverage type to you. While you’re there ask, “What other coverages should I consider and why?” Then you can make an informed decision on cost vs. risk of loss, and buy the amount of insurance you feel is appropriate.

Want lower premiums? Raise your deductibles! When you have a loss you are required to pay for the first few hundred or thousand dollars of a claim out of your own pocket. This first dollar amount is called your deductible amount – you select the deductible amount. To lower your premium, you can raise your deductible.

Beware though, the higher deductible the more you pay out of pocket on a loss – have your agent explain in further detail.

What Isn’t Covered and What to Consider Adding

You also need to understand that a typical homeowners policy does NOT cover many perils like earthquakes, floods, business activities and other specialty occurrences. However, there may be separate coverage for these perils.

Insurance is one of those things that most people don’t pay much attention to until they have a loss. That’s a huge mistake because then it’s too late!

To get the best from your homeowners insurance, and to make sure you’re properly covered, go get a checkup once a year.  Losses are stressful regardless, but if you have proper coverage then you may at least have a sigh of relief, knowing it could have been a lot worse.

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Leonard P. Baron, MBA, CPA, is a San Diego State University Real Estate Lecturer, a long-term real estate owner, an author and loves kicking the tires of a good piece of dirt! At ProfessorBaron.com you can download his free – “Real Estate Buying Due Diligence Checklist” under Chapter 1 – Due Diligence  – no sign up or registration needed just download it!

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Contributing author Wendy Mihm is the founder of FinancialRx.com, for women who are busy, competent and have it all together — except for maybe one thing: their family’s finances. See more information on the website to get your financial house in order.

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Buying a House Checklist

By Leonard Baron, MBA, CPA – ProfessorBaron.com and Wendy Mihm FinancialRx.com Founder

So you are ready to enter the real estate market and you want a Buying a House Checklist to help you make better purchasing decisions. These decisions are some of the largest you will make in life and will have significant financial impacts on you for years going forward. You realize that independent and unbiased information will be best to help you make smart and safe purchasing decisions on your largest purchase.

This independent information does exist and the framework for making these smart choices has not changed over the years. What has changed is the ability for the average real estate buyer to have the tools needed to do their homework, also called doing your due diligence.

One of the main decisions of course is should you even buy real estate and what issues should you consider. Impacting your course of action will be how long you plan to own the property, is it the right area and type of property for you, and how does one determine the financial picture so you can make sure you can afford the house and still pay all your other bills.

For example, the old adage of buying a property to earn some equity and trade up in a few years really doesn’t apply in the current marketplace. Experienced buyers know what the novice does not….that the transaction costs on the buy and the sell wipe out any hoped for equity gain if the property is not held for a minimum of five years. Hence, if a buyer isn’t sure they are going to own the property a long time, they will most likely do better by renting and leaving all the expensive issues of ownership with their landlord. The truth is, renting is not necessarily throwing away money, but short term ownership typically does result in throwing money away.

Other issues that a buyer would want to know relate to the true income tax impacts of real estate ownership and whether or not they are really getting any tax benefits? Or how to understand and select a mortgage lender who is giving them a fair deal. There is a whole buying a house checklist anyone can download that covers all the important issues you should want to know.

Items that should also be considered are:

–       HOA financial analysis to lower the risk of higher HOA fees or special assessments,

–       Property condition and inspection issues to help you understand the true costs of property rehabilitations and avoid potential money pits

–       Title insurance and reviewing a plat or survey so you are sure you are getting what you believe you are getting and issues do not crop up after you close escrow

–       Property and liability insurance so that if your house is damaged or you are sued you have insurance coverage in place

–       Many other items and issues that you should consider and think about when purchasing real estate.

Your taking the time to use some unbiased and neutral information to help you make smarter choices will reduce the risk of something going wrong on your purchase and hopefully lead into a smart and safe long term real estate experience.

You can download and review the Due Diligence Buying a Home Checklist from Leonard Baron’s website, no charge and no log in required, under Chapter 1 @ www.professorbaron.com.

So don’t skimp on protecting yourself on your largest purchase. Take the time, energy and effort to consider the real and significant issues with real estate ownership and significantly lower your risks by making prudent choices that will last for years.

 

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Buying vs Renting – A Little Independent and Neutral Advice

 

By Leonard Baron MBA, CPA, San Diego State University Lecturer

Real estate has gone through a few tough years and many who are considering buying vs. renting are asking themselves, “Is now the time to buy?”. Realtors and the National Association of Realtors are telling us that today’s buying environment is the best it has been in years, maybe in a lifetime. Low prices and cheap financing! As an independent and neutral analyst on the subject, I can tell you that I fully agree that it is a great time to buy property.

Now that doesn’t mean any property, nor is it a great time to buy property for certain people, and add that to the difficulty of obtaining financing, means there are still some significant bewares and decisions that one must think through before deciding if it is time.

The most important thing in owning real estate is being a long term owner and buying what I call the “Right” property for you.

Short Term Ownership – First and foremost, we buy property in hopes that we are financially better off down that road than if we stayed as a renter of someone else’s property. For the vast majority of purchasers, the reality is that if you are not going to own property for at least five years, you are probably going to be financially better off and have a much lower level of stress in your life by paying rent to someone else.

The reason for this is that there are significant transaction costs on the buy and the sell that will probably wipe out any potential equity you may have hoped to earn on shorter term ownership. Additionally, you probably, but not always, pay more to own than rent so all those additional monies could have been saved and invested elsewhere. Owning real estate is also expensive, stressful, and time consuming…. And especially if you have to put thousands of dollars into a property you plan to sell in the next few years.

So the number one buying vs. renting tip is – buy property for the long haul. If you are in the military, a professional athlete, or just don’t know what your future holds… make life simpler and stay a renter.

But the RIGHT Property – If now you are a committed long term only buyer, you want to make sure the property you buy is the right property for you for all the right reasons. School district? Size? Location? Condition? Cost to get property into the condition you would like? Don’t rush to buy a property that you don’t “love”. Take your time, this is the largest purchase you will ever make and has significant financial risks – do the hard work upfront and right the first time around.

So figure out the most important items you want in a home and write them down. Talk to friends and family and get the list of items you want. Realize, you will never find the perfect property, but hopefully with a lot of hard work and thought into it, you will find something that matches your price range and desires and you can call home.

Rent vs. Own Differential – Lastly, make sure it isn’t too much more expensive to rent vs. own. Now fancier properties are usually much more expensive, and if you can afford it, and love it, go for it. But for the rest of us make sure that your hard earned dollars are well spent. So if you want to buy a fancy condo and you need to put down $50,000 to buy it, and it costs $3,800 per month to own and only $2,300 to rent, that is an extra $18,000 per year for the ownership privilege plus your downpayment. So make sure that makes sense to you.

Only you can make that decision. But those items above are the biggest mistakes I’ve seen people make – short term ownership, buying just to buy something, or buying where they can rent at a much lower cost.

So think those through as you consider your buying vs. renting housing options for the next few years and realize it is a great time to buy real estate – but only for the right purchaser and for the right reasons!

Author Leonard P. Baron, MBA, CPA, is a real estate lecturer at San Diego State University, a long term residential real estate investor and author of Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate.

You can learn more about him and get his free – “Real Estate Buying Due Diligence Checklist” at professorbaron.com – under Chapter 1 – Due Diligence (no sign up or registration needed just download it!)

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Steps in Buying a House

Ready for the joys of homeownership! Few people understand the steps in buying a house so we wanted to provide a general overview herein. It really is a time consuming, stressful and complex process but the more you know, the better the chances you will make smart decisions.

First make sure it really makes sense for you to buy. There are a few simple guidelines. If you do not plan to own it for at least five years, you will most likely be better off renting someone else’s property. Also, owning shouldn’t be significantly more expensive than renting. Ownership usually is somewhat more expensive, so just make sure that makes sense for you. Note: The fancier the house, the more owning will cost over renting. Lastly, don’t buy in an area unless you know it really well!

Next you should get qualified by a reputable loan officer to see what price property is affordable for you; and then interview a few and select one qualified sales professional to represent you and stick with them during the process.

Now the real fun gets started!

1. Determine Type, Location, Amenities – Hopefully you can find some areas that match what you can afford with what you desire to own. Think through the amenities you want, like good schools, parks, nearby retail, urban, suburban, near highways, etc. And house, townhome or condo?

2. Shop for Property – You should should expect to look for a few months as you drive areas, go to open houses, review online listings and have your sales professional give you property tours. Online websites like Zillow, Trulia and Redfin are a huge help and you should view at least 15 homes to get a feel for what the market has to offer.

3. Offering on a Property – When you find the “right” property, make an offer quickly. You typically have a study period and little money at risk for 7-17 days as you do more research of the property and area. It may be just the first of many offers you will be making as you fight others for the good properties!

4. In Escrow – If you strike a deal with the seller, you are in escrow! Now you work through the terms of your contract doing your home inspection and other due diligence to make sure it is the “right” property for you. Mind all the contract terms and timelines carefully as you may soon have money at risk.

5. Mortgage Loan – Once you are in escrow move forward with your Mortgage Financing immediately as loans take 30-45 days to complete. Get all the newly required and re-requested documents to the bank quickly. It’s a lot of paperwork, but that is the process.

Note: Do not buy any cars, furniture, run up credit card debts or forget to pay bills on time during this process. It could kill your financing and hence the deal!

6.  Moving Forward – As your lender works through their underwriting process and requirements, you should work through your due diligence of the area, property condition, HOA documents, title report, property insurance, etc. Lots of steps in buying a house…and you will learn that it takes a lot of time!

7.  Closing Escrow and Owning the Property – As the bank does it’s final loan approval escrow will prepare documents to transfer title to you. Escrow will prepare a preliminary HUD-1 showing how much money you need to close the purchase. Then get your funds over to the escrow company, you will sign loan and purchase documents, the bank will fund the loan, and record your title to the property at the courthouse.

 Congratulations, you just joined the world of real estate ownership. Those are the basic steps in buying a house. It is the largest purchase you will ever make and taking the time to really learn and understand the process should make your ownership a good long term wealth building experience.

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For further help you can download and review a Due Diligence Buying a Home Checklist from Leonard Baron’s website at no charge and with no log in required, under Chapter 1 at professorbaron.com.

Don’t skimp on protecting yourself on your largest purchase. Take the time, energy and effort to consider the real and significant issues with real estate ownership, and significantly lower your risks by making prudent choices that will last for years.

Leonard P. Baron, MBA, CPA, is a real estate lecturer at San Diego State University and author of Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate.

Leonard is a long term residential real estate owner. He buys investment properties now, he does commercial real estate investment consulting at LPBServicesLLC.com – and he loves kicking the tires on a good piece of dirt!

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