Five Ways to Beat the System in Real Estate

Times are tough in the real estate market recently, or are they? The rich and investment bankers have always weathered real estate storms and so can you. Here are five tricks I learned over the years (the hard way), about investing and keeping real estate property.

First, regardless of what the banks and real estate agents may tell you, you-the buyer and they-the seller can negotiate pretty much any kind of earnest money agreement that you want. In our state, the minimum appears to be at least a few dollars in "consideration" however, I have seen apartment complexes pass hands on earnest agreements as small as Ten Dollars. Some times the earnest money can be in the form of a promissory note or promise to pay once financing has been secured. This first trick is probably the most important because you do NOT want to tie up your money waiting on whether a deal is going to go through or not. The only exception to this rule would be the purchase of a foreclosure where some kind of bond has to be put up first in order to show good faith. Other than some kind of auction or Federal Government-run program, put as little up in the way of an earnest money agreement as you can - preferable a promissory note.

Second, always make your real estate deal contingent upon a lot of verious and sundry things which are important to you as a buyer. This is a buyer's market after all. I have heard too many horror stories about how people purchased property that was later so badly decomposed, it ended up costing the real estate "house flippers" more to repair than they had intended. Thus, any deal should be contingent and in writing in the agreement that you want inspections (VA or HUD quality), the financing must be to your specifications and preapproved in writing, and for heaven's sake watch out for hidden costs like sewer liens, and the builders' favorite add-on, improvements in order to bring the house up to codes of the existing neighborhood. By the way, if you are purchasing a home in a development with neighborhood restrictions, a community pool and clubhouse, or other like-minded hidden home-owner association dues and fees, make sure these are paid in full and not appearing as a lien on the property before the owners/builders try to pass those costs on to you.

Third, never use your own living expenses and day-to-day money when investing in expensive items, if possible. You can save and put money away into your IRA and pension, but why rob from yourself to pay Paul, look to Peter. HUD, VA and various other real estate builders and devolopers will give you a zero down deal or help pay the majority of your closing costs. Get it all in writing and make sure they honor these promises. Do not forget that Life Insurance Policy that now is earning maybe 3 percent interest, you can borrow against that too. I have even known of young couples using their student loans to pay against real estate loans (totally not ethical), but it has been known to occur. If they use the funds to buy computers and cars, why not something of lasting value like the roof over your head?

Fourth, if you were not wise enough to purchase a long-term locked in mortgage payment and now find the payments are way out of your league, do not panic and do not refinance to a mortgage loan shark. Most reputable banks love to have real estate in their portfolios as good collateral against the mortage loan. Do not devalue nor over value your property. I believe this is part of the problem, people believed that they were going to double the value of their property in 5 years. Remember, even it this were true, the money is simply "on paper" and tied up in your property - literally the roof over your head which can not be easily disposed of - so always hang onto your cash-at-hand first. Being able to make that payment and hopefully pay into the principal is more important than the equity earned in these trying times. If possible, ask the bank for a statement of what things would look like if you made double-payments, in order to get that loan paid off early. It has always amazed me how people driving expensive cars and living in fancy developments who took out huge loans for these do not realize THEY DO NOT OWN THESE THINGS, THE BANKERS DO and they can repo any time they want if you do not pay them properly. New development and builders are having a great time thus far in our area of Washington State (they have captured the retirement and empty nester market to a tee). There are still a lot of good deals to be made in real estate, but mostly with what I call roll-over money, pensioners, retirees and long-time homeowners who are rolling over their equity.

Last, do not be shy about asking everyone involved to help you. They helped get you into this mess, they can get you out. The federal government offers many tax advantages including for home improvement projects. Local low income agencies offer free inspections and home-heating and insulation improvement loans at low cost. If your bank will not help, go to a Credit Union who supports their members personally, or search for an out of the area lender if your neighborbood location is less than stellar. Make your property sound as good as it can be and always post a picture complete with every amentity. You would be shocked at how many real estate listings in a book do not reflect the true nature of the property such as it being on a double lot, having a detached garage or floor to ceiling fireplace. I have even known of people heading down to their local auditor's office to see what and when the last time the property was appraised. You may be surprised to learn your property was valued five years ago or longer and improperly. I learned that auditors sometimes simply drive by - they do not even inspect the property when doing an appraisal. Owners used to discourage re-appraisals because they did not want their taxes raised or improvements noted for the record. That tide has turned, you need to be honest about your property now. I have noticed a trend in our area of landowners rezoning from residential to commercial. There is a huge need for land to build doctors offices in this baby boomer generation. Landowners also want the freedom to subdivide, so be wary of any ordinances which minimize your ability to sell off what land you may own or land which may be taken from you for city and state improvements and roads by vacation.