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Avoiding Real Estate Scams

Many people have heard of the “419” scams. The term “419” comes from the Nigerian penal code section of that designation that deals with fraud.

Despite a widespread belief that the people who get taken in by these scams are greedy and stupid, many are not. Many believe they are donating to distressed individuals and/or charities. These scams have spread into real estate as well, targeting house sellers and real estate agents.

The scam usually opens with a bait letter, assuring the recipient that the person contacting them is a) a widow whose husband left her millions that she cannot safely access due to her evil family, b) a high-ranking military official seeking to move money out of the control of their oppressive governmental regime, c) a representative of a mysterious person high up in the government, or d) a person interested in an item that the person is selling or representing.

If the target responds to the letter, the scammer usually replies with thanks and asks for personal information. Often this includes a bank account number, but this is not, as some people think, how the target is scammed. It is used as a gauge to determine if the target is likely to give money in order to pay “processing fees” or other mysterious charges.

Scammers will also provide scans of documents that look legitimate. Many can be stolen from other people or digitally altered. If called on discrepancies, the scammer will blame poor computer equipment.

In nearly all these scams, urgency and confidentiality are emphasized. The scammer doesn’t want their victim to seek outside aid or take time to think things over. They are depending on the “get it now or you never will!” feeling to encourage the victim to send the money – usually through Western Union or some other money wire transfer company. Once the money is picked up, the person who sent it has no way to get it back.

An example of a real estate related scam:

You get an unsolicited email from someone claiming to be interested in your house. They will send you a large check, many thousands of dollars over the amount you are asking for the property. They then want you to refund the extra money.

Or they say that there are “fees” that the seller must pay in their country. In any case, you have to send the money now. Now, because the person interested in your house needs the money to a) come to America, b) pay for their cancer operation, or c) take their sick mother to the hospital.

Sometimes, if you balk at sending a complete stranger thousands of dollars, they may threaten you with “legal action” or enhance the sob story to the point where their sick mother is suffering from cancer, AIDS, measles etc., all at the same time.

Real estate transactions are only one of the targets of scammers. The scammer is not interested in your house; s/he only is interested in the money you can send to finance whatever spurious fees are claimed to be involved with the transaction.

Don’t send anyone any money or cash checks that are sent to you from an unverified institution or individual. Consult with a real estate professional for advice on how to handle offers via the internet. Since many people use the internet to inquire about houses, prices, etc., an email inquiry may be legitimate. Just make sure that the person is legitimate before pursuing a financial transaction.

Does Paying Points On a Mortgage Make Sense?

You’ve found your dream home and are now ready to start shopping for a mortgage. Several lenders have talked about points. Points, also called discount points or origination fees, are each worth one percent of the loan amount. Paying points basically allows the borrower to buy down the interest rate. They are paid to the lender at closing.

You’ve heard that paying points is the only way to get a low interest rate. But is increasing your initial costs worth getting a lower rate?

For most people, paying points doesn’t make sense.

Points became popular in the early 1980s when mortgage rates were in excess of 15%. Most people could not afford the monthly payments that come with such high interest rates. Lenders began offering discounted rates at a certain fee. Sellers often paid the points in order to sell their properties. This gave buyers affordable mortgages and owners were able to sell their homes.

Times are different now. Interest rates are low. There isn’t a large need to pay a lot of money up front in order to get a lower rate.

Let’s look at the numbers. You have contracted to purchase a home for $450,000. You have the 20% down, which leaves you with a mortgage of $360,000.

You find a 30-year fixed rate mortgage at 3.50% with one point. For closing, you will need to pay an additional $3,600 ($360,000 x 1%) for the point.

The lender can also offer you a rate of 3.75% with no points.

What do you choose? The lower rate or the lower closing?

At 3.50% you will have a monthly principal and interest payment of $1,616. At 3.75% your payment increases to $1,667 each month. That’s a difference of $51 per month. If you are looking for a monthly payment reduction, that’s not really a significant one.

It will take you 70 months ($3,600 divided by $51) to recoup your one point payment at closing in the form of a lower monthly payment. This is your payback period. But if you had the $3,600 still, it could be earning interest elsewhere. If it gets 3% interest in another investment, it would earn about $9 per month. If you pay points, this is interest lost, so subtract $9 from your $51 per month savings. Now divide $42 into $3,600, and your payback period increases to 85 months — seven years.

So you have to live in your home for at least seven years in order to take advantage of the savings that paying points gives you. Most people don’t keep a mortgage for seven years.

Whether through sale to  move up or elsewhere or refinance for cash out or lower rates, the average American keeps their mortgage for six years. Unless you are absolutely sure you will live in the home for the time period necessary to recoup your points, you should probably invest your money instead of putting it towards points.

If you are looking at paying points in order to reduce your monthly housing payment, you may want to look at a less expensive property. Fifty one dollars worth of savings isn’t a lot if you are on a tight budget. Chances are that if you have a tight budget to start with, finding extra money for closing would be difficult. And don’t forget, taking out a side loan to get the money to pay points with is defeating the purpose.

My suggestion, don’t pay points unless you’re sure it makes sense for you.

Selling Your Home? Start From the Obvious

Curb appeal matters when selling a home.

First impressions matter most. This is one concept that many homeowners trying to sell their homes and first time property investors trying to sell or rent property fail to understand. Curb appeal is the first impression when it comes to a house.

This is the place that you as an investor or seller want those driving buy to think of as home. For this reason you should pay careful attention and spend some degree of time and effort making the outside of the home inviting and appealing to potential buyers or renters.

One of the first things that people will notice is crumbling paint and bland or tired and faded colors on the exterior. Vinyl siding is often inviting because it is easily cleaned and reinvigorated. It also happens to be fairly low maintenance, which often appeals to buyers and renters alike. There are those however who will argue that siding detracts from the potential personality of a home. To each his or her own in this as it is a personal decision on behalf of the buyer and the seller. Regardless a clean and crisp paint job or siding makes a much better impression than an apparent state of disrepair.

Remember those first impressions are important. If the outside of the home is rather unimpressive potential buyers are quite unlikely to discover the diamond that is the inside of your home.

Another thing you can do to add curb appeal is to plant low maintenance flowers and plants around the exterior of your home. You do not want to invest in plants that require constant care nor do you want to seriously invest in plants that are going to grow out of control and look unwieldy. At least you do not want to plant these around the exterior of your home that is facing the road. Bushes and climbing vines do well in many cases along fences that surround the property however or as a dividing privacy line between your property and neighboring properties.

Another thing to keep in mind when making the upgrades is to clean the sidewalks and driveway if it is concrete. It is amazing what a high power pressure washer can do to your sidewalks, driveway, and/or front porch. Don’t stop there however; take the time to make sure your doors and windows are clean as well. These little things often make the biggest impression.

If you care properly for the exterior of your home and keep it nice and shiny chances are (in the buyer’s mind) that you will have taken the same care of the inside of the home that they are quite possibly now considering.

Taking the extra time to insure that the outside of your home is attractive to buyers can translate into higher and quicker offers than neglecting the essential real estate between the front door and the curb. Do not overlook this powerful piece of advice and you should enjoy a little more success in your efforts to sell your home or investment property.

Dealing with Unpleasant Negotiators

Selling your house yourself can be intimidating if you’re doing it the first time. Here’s how to deal with unpleasant negotiators.

Unpleasant Negotiators

Sometimes you encounter someone who is not going to be happy unless he or she maneuvers you into accepting less than your home is worth or doing things for his benefit that are unreasonable. Then what?

Well, first let’s discuss the most common forms these nasty types take and then we’ll talk about what to do with them.

One frequent form the unpleasant negotiator takes is the person who tries to intimidate you and disparage your property. Red flags should go up if someone works hard at trying to get you on the defensive. I’m not talking about an occasional negative remark. What I’m talking about is a whole string of them and the attitude that goes with it. Even if it’s cloaked in the appearance of classic good manners and charm, you’re dealing with a difficult negotiator.

The second typical form an unpleasant negotiator takes is the “nibbler.” You think negotiations are over and that the two of you have come to a mutually acceptable agreement. Then at various points as you progress toward completion of the sales process, the other person “nibbles.” They usually pretend they had no idea that the carpet needed to be stretched, the roof needed to be replaced, the crystal chandelier in the dining room did not convey, or fill-in-the-blank, and use that as an excuse to change things. This process can and does continue right up to the point of settlement or the point the deal falls apart, whichever comes first!

The Walk-Away Secret

Sometimes you get these two nasty types in one negotiator, but don’t despair. You can cope with them. The first thing you need to do is to stay in a calm, evaluating frame of mind. At each step along the way, ask yourself, “Is this reasonable? Am I willing to do this in order to make a sale?” Proceed as long as the answer is “yes.”

Be willing to walk away if the answer becomes “no.” I cannot over emphasize the power of “being willing to walk away” from negotiations. Don’t read that phrase too quickly. Be “willing to walk away.” It is one of the strongest negotiating tools on the planet. It’s simple. It does not require being nasty. However, what it does require is that you not consider your home sold (or bought, for that matter) until all negotiations are really over.

Think about it. You put yourself in a “losing posture” with a nasty negotiator the moment you emotionally consider your house sold. So long as you’re willing to walk away, you have power that is as strong as the buyer’s wish to buy. If such a “deal” blows up, so be it. You weren’t going to get what you wanted from it anyway.

Now, a word about “nibbles.”  A nibble can be dealt with by inquiring blandly, “If I do that for you, will you do ‘fill-in-the-blank’ for me?” Your goal is to convey to the nibbler that each successful nibble will cost him something. Make it something significant relative to the nibble request.

If you don’t think fast on your feet, you can always say, “I’ll get back to you on that.” Don’t allow yourself to be rushed if you think best when you mull things over. Stay calm and thoughtful. No one can force you to make a sale or purchase that’s not in your best interest.

Keep evaluating the situation, and stay open to the possibility that you may need to walk away until the sale is complete. That way you won’t force yourself to do what’s not in your best interest either. It’s not easy, but it’s very simple. Stay in control of yourself.

Act Now to Forgo Foreclosure

Whether you are an investor or a homeowner, if you are facing difficulties with your mortgage, remember that the ultimate goal is to maintain your credit rating. You may be able to negotiate with your lender, you may be able to refinance, or you may be forced to sell your home now in order to buy one in the future, but the sooner you address the issue the more options you will have.

By getting your finances in order you will be able to get on with your life sooner. Don’t add to your stress by ignoring your fiscal situation; follow these steps to getting back on track:

Know the details – go over all your loan documents so that you are prepared for any upcoming resets or changes. When will your payments increase? By how much? Can you refinance? What kind of penalty would you face, if any?

Cut in other areas – can you take a roommate or a second job to help make your payments? You may need to look at significant changes in your spending and lifestyle. Do not make any major purchases at this time, and look at liquidating other assets, such as cars or boats, to help meet your payments.

Contact your lender – You should take the initiative with your lender. Contact them before the problem becomes overwhelming. If you receive calls or letters from your lender, respond to them as soon as possible. Do not wait to get too far behind – lenders are less likely to move quickly into foreclosure if you are proactive. You want to speak to the right people – ask for the loss mitigation or collections department. Be honest with them about your situation and don’t make promises you can’t keep.

Beware of foreclosure “rescue” scams – There are a number of scam artists targeting people in neighborhoods where foreclosure rates have been high. They approach troubled homeowners with promises to help them keep their houses. These “rescues” often come with payments that are out of reach of the average homeowner and result in homeowners being defrauded of their homes, sometimes still owing the original mortgage amount.

Any company that approaches you with such an offer should be checked out through the Better Business Bureau, your state real estate commission and Attorney General.

Do not sign anything without reading it all, get all promises in writing and ask your attorney or a financial professional to review any paperwork before you sign it.

Call a nonprofit group offering free housing advice for more information and counseling. They may be able to help you with your options.

If all else fails, negotiate a short sale – if you have missed more than two payments but your home has not yet gone into foreclosure you may be able to sell it for a price that falls short of what you owe the lender. If your mortgage holder agrees to accept the price and forgive the rest of your debt, they forgo the pricey foreclosure process and you walk away with minimal damage to your credit score.

You can chalk it up to experience, save up a down payment and start over again when the time is right.

How to Unpack without Exploding

One of the forgotten steps in moving is the fact that physically moving your belongings from one spot to another is only part of the deal. Once you get your boxes and your mattress and your desk to its final destination, you still have to be able to find everything and put everything where it belongs.

A rule of thumb when surveying your house is that no matter how many box-fulls you think you have, a good idea is to at least increase your most generous estimate by at least 50 percent. And remember, for every box you pack, that’s a box you have to unpack.

According to data from the US Census, 14 percent of all American households last year moved. That translates to somewhere around 40 million people switching addresses.

Most of us take weeks, sometimes months to slowly and painstakingly categorize, wrap and pack all of our belongings. We spend months looking at prospective houses, arguing with our real estate agent and we spend days with our fingers crossed hoping we got the property we wanted.

But once you do get your dream house, then what? You took all this time to get everything ready and then you leave yourself….

ONE

DAY

…..to move everything. Yup, it’s just about as crazy as it sounds. But fear not, there are some common sense tips to keep your head from exploding. If you have the money, there are several companies out there that will help you pack up everything, and then once the movers do their thing, they will unpack pretty much everything. They will even take the boxes with them when they go. They will hang pictures, put your toothbrush in the bathroom and put the sheets on the bed. They will even get the computer up and running.

But, as you can imagine, these types of services aren’t cheap. If they aren’t in your budget, here are some good tips for do-it-yourselfers.

  • “See-through” is your friend. Stay away from opaque brown cardboard boxes and try to use as much clear packing material as you can. Clear plastic bins, Ziploc bags for small things, anything that you can think of that is clear and can hold large amounts of stuff.
  •  Lists Lists Lists. Write down what goes in every single box, so when you wake up that first morning in your beautiful new home and you want that first cup of coffee, all you have to do is grab that list and see that it’s in box 91.
  •  Have the utilities turned on before you move in. This is especially important if you have kids. Moves are traumatic enough for adults, but when little Johnny is having his universe ripped apart, it helps to be able to plop the kids in front of  Dora the Explorer for a bit while you try to recover from exhaustion.

While nothing can really prepare you for the mental and physical stress of moving day, being prepared and taking a few common sense steps can help keep things from getting too out of hand.

Investing in Real Estate: Motivated Sellers – How To Find One?

If you’ve ever read a book on real estate investing, you’ve read that the best deals come from motivated sellers. Now how do you find one?

A friend of mine told me the following story: “My wife and I were trying to keep the renters happy, the rent coming in and the house repaired – while living 2100 miles away. You bet I was motivated. We just sold our house last month, and even got a good price, but I’ll tell you a secret. We would have sold the place for… well I don’t want to stress out the buyer if he reads this. Let’s just say we would have sold it for much less.”

There’s your first clue on finding a motivated seller. If his (or her) property isn’t where he is, he’s probably ready to deal. How do you get this information? By asking. Talk to the real estate agent, the neighbors, and anyone else who might know something useful.

Here are some other things to watch for that may indicate a motivated seller.

1. Relocation. If you hear that the seller is relocating for work, ask when he will be moving. He may already be worrying about those double payments.

2. Divorce. Divorce or relationship problems create many motivated sellers. Often a house payment needed both parties, and will have to be sold quickly.

3. Financial problems. A failing business, too much debt or other financial problems often force a sale. Find out if the owner is behind on payments.

4. Tenant problems. It is easy to get tired of being a landlord. It is also common to want to get out at any reasonable price.

5. Probate. If the house is in probate, and the heirs are all waiting to get their inheritance, they may be more interested in a quick sale than a great price.

6. Up-sizing or down-sizing. Owners moving into a larger or a smaller home may already have one in mind and need to sell quickly.

More Clues For Finding A Motivated Seller

Another way to find motivated sellers is to pay attention to the wording of ads in the classifieds. Statements like, “Need to sell,” “Must sell,” and “Will look at all offers,” are good indicators. “Must have a good job,” in a rental ad may indicate a landlord that is tired of tenants and ready to sell.

Some other methods:

1. Find neglected properties. If they aren’t maintaining the property, they may be short on cash, tired of it, or out of town – all good motivators.

2. Use property tax rolls. Go to the county records, which are open to the public in most places. What you are looking for is properties that list an owner with an address far away.

3. Use timing. Just before school starts, people are motivated to get their house sold so they can get their kids enrolled in the new school where they are moving. If an apartment building has been sitting there for sale for the whole winter, the owner may be tired of the bills and ready to get it sold fast.

The bottom line is to use your eyes and ears and look for the clues. Talking to people helps a lot. However you find your motivated sellers, the next step is to motivate them even more, by giving them what they want. Start by negotiating for a fast, easy closing for them – and a good price for you. That, however, is a topic for another article.

Investing in Real Estate? Try this Strategy, Buy Property That’s Not For Sale

Buying real estate can start with a look in the newspaper, a visit to a broker, or a search online. These are all good ways to find your next investment property. You’re looking at the same properties as every other investor, so it’s not always easy to beat the competition to a great buy.

A better way to find good real estate investments is to look for properties that aren’t yet for sale, and make an offer. A friend of mine bought his first home this way. He put an ad in the paper stating what he was looking for, and soon had a call from an old couple that had been thinking about selling. He bought their place at a good price, and saved a broker’s commission.

Buying investment real estate that isn’t for sale starts with a three step search process.

First decide what you are looking for. Single family rentals or apartment buildings? Then start looking for properties that fit your criteria. Then contact the owners.

Buying Real Estate From Non-Sellers

Don’t limit yourself to “fixer-uppers” or other “problem” properties that seem more likely to have owners willing to sell. Many owners of investment real estate have thought of selling, so you can start with almost any building you like. You never know beforehand if or why a landlord is ready to call it quits. You find out by asking.

Tact is necessary here. Call the owner and tell him (or her) you’re an investor, not a broker. Let him know that you like what you see. Tell him you can have an offer ready in a week if he’s interested. If he’s not interested, thank him politely and hang up, but send him your card or a letter. Many investors have bought from owners that changed their minds.

If there is some interest, explain that you are an investor, so your offer will have to be based on your return on investment. This means you’ll need to see the books. Specifically, you’ll need to see the rent roll listing the units and what they rent for, plus current occupancy, and operating expenses for the last year.

Have a confidentiality agreement ready before you call. Let the owner know that you’ll sign it and deliver it to him before you see the books. He may not want to let the tenants know he’s thinking of selling, so inspecting the units may have to wait until you make an offer. Just make an acceptable inspection a contingency in the offer.

Why buy investment properties this way? No competition and no sales commission means you may get a better price. Also, instead of waiting for that perfect property to be listed for sale, you just find it now. Why wait until it’s for sale before buying real estate?

Free Moving Checklist

Are you moving in the next few weeks or months?  Are you ready for the move? Have you forgotten anything?

My free Moving Checklist identifies up to 60 things you need to take care of before you move; everything from arranging for transfer of your doctor and dental records to transferring your prescriptions, and whom to notify of your change of address.

It is divided into when to do what, starting 6 to 8 weeks before, straight through the big day. It’s a very handy list you’ll want to have, and it’s yours free with my compliments.

To download your free Moving Checklist, just click on the picture on the right, and enjoy your new home!

 

 

“Renting Back” After Your Home Is Sold

Sometimes it’s helpful to sell your home before you really want to move. This often happens when you are having a new home built, but aren’t sure of the completion date. Is there any way you can sell your home so you’re sure of the funds available for the new purchase, but continue to live in your old home until construction of the new one is complete? Yes, there is with the renting back strategy.

Enter the Lease-Back or Rent-Back Agreement

The particulars of this strategy vary from state to state, but in the strong seller’s market we’re experiencing, buyers will often agree to let the seller stay in the home for a period of time as long as rent is paid. In a competitive situation, the buyer willing to do this will often have the winning bid even though there is another offer as high as his.

The agreement covering the situation states the length of time the seller will remain. It can be done with a specific date named or wording that allows the seller to remain up to a specific date with the possibility of moving sooner. The amount can be a fixed figure paid out of the proceeds of settlement or a monthly amount, or a daily amount. It is usually, but not always, tied to the amount of the mortgage payment under the buyer’s new loan. Sometimes there is a deposit against damage, sometimes not. There is usually a clause saying the seller will hold the buyer harmless for any damage to himself or his property which occurs after the sale is consummated and before the seller moves.

The attorney who draws up your contract offer can create such an agreement. If you’re using online forms, you should be able to find one for this situation. If you’re working with a real estate broker, he or she can handle it for you.

I’ve recently seen a very pleasant example of this idea in action. An elderly widow contracted to have a one level condo unit built in a new community which provides all exterior maintenance. She had had hip replacement surgery and wanted to get away from the drawbacks of the home in which she’d reared her children. The home was large, had stairs and was located on a large, partially wooded lot with many mature perennials and shrubs. Both the home and garden were beautiful, but high maintenance.

Her contract to purchase required a series of deposits and a firm indication as to her source of funds well before settlement on her new condo. The widow put her home on the market. A young couple with two sons was very anxious to buy it. The situation was competitive. They made the widow an offer. She countered their original offer. She did not raise their offer price, which was slightly below her asking price. She did not believe the young couple would qualify for a larger loan. Instead, she did something rather creative.

The widow countered with a proposal that she “rent back” for a period of “up to” a certain date (a date beyond her scheduled competition date on the condo) in exchange for a modest flat sum to be paid to the buyer at settlement. The total rent back period was less than two months. The flat fee was less than the amount of the new mortgage payment for the buyers. However, since they made no payment on their new mortgage the first month, it wasn’t too far out of line. The couple really wanted the home, so they accepted the counter offer.

Another win, win situation was created. The widow only had to move one time and the young couple got a house they probably wouldn’t have in a straight bidding war. If you find yourself in a situation similar to either the widow or the young couple, perhaps you can work out a similar solution.

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