Want to know the risks and gains of investing in real estate?
Whether you are considering buying a foreclosure property, a fixer-upper, a condo, apartment, single-family home or a vacation property in Doylestown, PA, or have your heart set on Bucks County real estate, Montgomery County real estate, or Philadelphia real estate, trust experienced realtor and Bucks County resident Dawn M. Gilley to ensure that all of your real estate purchases are investments … now and for years to come.
A foreclosure is a home that has been repossessed by the lender because the owners failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic conditions affect the number of foreclosures, too. Many people lose their homes due to job loss, credit problems or unexpected expenses. Financing a foreclosure can be tricky. One reason there are few bidders at foreclosure sales is that it is next to impossible to get financing. Buyers generally need to show up with cash and lots of it, or a line of credit with your bank upon which you can draw cashier’s checks.
Foreclosure buying tips
- Inexperienced buyers should consider hiring a real estate professional to provide guidance
- Be sure any liens, private mortgages or court judgments are cleared or at least disclosed
- Be aware that the property’s condition is not well known and an interior inspection of the property may not be possible before the sale.
- Understand that foreclosures are sold “as is,” meaning limited repairs have been made but no structural or mechanical warranties are implied
In most states, a foreclosure notice must be published in the legal notices section of a local newspaper where the property is located or in the nearest city. Foreclosure notices are usually posted on the property itself and somewhere in the town where the sale is to take place. When a homeowner is late on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The financial institution that has initiated foreclosure proceedings usually will set the bid price at the loan amount. Despite these seemingly straightforward rules, buying foreclosures is not as easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition.
The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors. If you are strapped for cash and looking for a bargain, you may be able to buy a HUD foreclosure property for as little as $100 down. With HUD foreclosures, down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from 5 to 20 percent. But when the property is FHA-insured, the down payment can go much lower. Each offer must be accompanied by an “earnest money” deposit equal to 5 percent of the bid price, not to exceed $2,000 but not less than $500. You can only purchase a HUD property through a licensed real estate broker. HUD will pay the broker’s commission up to 6 percent of the sales price.
The U.S. Department of Veterans Affairs also offers foreclosure properties which can be purchased directly from the VA, often well below market value and with a down payment amount as low as 2 percent. Investors may be required to pay up to 10 percent of the purchase price as a down payment. To learn more about purchasing a VA foreclosure, call 1-800-827-1000 to request a current listing. About 100 new properties are listed every two weeks.
Is it smart to even consider a fixer-upper? It depends. Distressed properties or fixer-uppers can be found anywhere, even in wealthier neighborhoods throughout Doylestown, PA and amid Bucks County real estate, Montgomery County real estate and Philadelphia real estate. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood.
Tips for buying fixer-uppers
- First find the least desirable house in the best neighborhood
- Do the math to see if what it would cost to bring up the value of that property to its full potential market value is within your budget
- Try to find a “cosmetic fixer” that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances
- Avoid run-down houses that need major structural repairs
- A house price that looks too good to be true probably is
Financial incentives for buying a fixer-upper
Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for eligible rehabilitation expenses. A historic structure must be listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government. The tax code does not allow deductions for the demolition or significant alteration of a historic structure.
The U.S. Department of Housing and Urban Development’s Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible. The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property “as is” and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs. For a list of participating lenders, call HUD at 202-708-2720.
The U.S. Department of Veterans Affairs provides loans for veterans which can be used to buy, build or improve a home, or refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility.
Is remodeling worth the price and time?
Remodeling magazine produces an annual “Cost vs. Value Report” that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its “curb appeal” with a potential buyer down the road.
Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. According to the survey, you could expect to recoup 58 percent of the cost of adding a home office.
Condos, Apartments & Single-Family Homes
What are the differences between condos and single-family homes? Using appreciation as a measure, condominiums in some areas have been as profitable an investment as single-family homes in the past five years. And in some markets, condos appreciated even more, according to some experts.
While single-family homes have been the preferred investment of homebuyers, changing demographics are helping to make condos more popular, especially among single homebuyers, empty nesters and first-time buyers in high-priced markets.
While condos never had the kind of appreciation experienced by single-family homes in the go-go 1980s, most ultimately have not lost value, experts say. And with high prices in many urban markets and more single homebuyers in the market than ever before, the market for condos is strong.
Condo buying tips
- Do your homework about the neighborhood or development before you buy
- Read the past six months of homeowners association minutes to see how effective the board is and learn about any possibly detracting issues
- Study the association’s covenants, codes and restrictions, or CC&Rs, and find out if you can live by them
- Find out all you can about the association’s finances
- Find out if dues are expected to increase and if any special assessments are planned
- Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike
- Meet with the association president
- Speak with residents to get their views on the association’s finances, its property manager and its operation
If you are buying a rental income property and applying for a loan to do so, the lender will require an area rent survey by a certified appraiser. The amount a landlord can expect to receive in monthly rent largely depends on what the property has rented for in the past, the condition of the building, its location and the current housing market.
Lenders also look at other cash-flow considerations. They want to know if you have enough reserves on hand to cover predictable and unforeseen expenses, such as property insurance, taxes, regular maintenance and repairs.
You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits.
Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible.
Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house less than 14 days a year.
You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.