Helping You Avoid Life's Financial Mistakes

Rent To Own Contracts: Is It Worth Buying a Home This Way

September 22, 2010 By 6 Comments

You may have been considering the thought of buying a home lately.  One option that has become fairly popular over the years is what is known as rent to own contracts.  However this option may not be what you think it is and you will defiantly want to read this article before you consider a rent to own contract.

What Are Rent To Own Home Contracts

Rent to own contracts for homes are an agreement set up between a buyer and a seller that give the buyer the right to buy the property between a specific time period, in most cases it’s around 1 to 3 years.

The seller will then pay the seller rent over this period and a portion of it will go to the seller to cover his mortgage cost and part of it will go towards a down payment.

For example if you had a $1200 rent payment $400 of the money may go towards the down payment and the other $800 will go towards the normal rent.  Knowing this you might be wondering what would be the benefits of going this route?

The Good Reasons

First off, this option gives you the opportunity to see if the house and the neighborhood would actually be a great place for you to live.  If for some reason down the road you decide not to take the owner up on his rent to own contract you don’t have to do it.

Second, as I mentioned earlier a lot of sellers will put a portion of this money towards your down payment on the home.  This way when you go to buy the home you will already have equity in it.  In fact in some cases some sellers are willing to put as much as 100%of the money towards the down payment just to sell the home.

Third and finally, this option also gives someone who might have bad credit to have the opportunity to buy a home that they might not normally be able to buy the traditional route.  With this option you might be able to get seller financing without having to work with the banks.  In fact some loans like FHA loans are assumable which means you could even take over the current sellers mortgage payments by signing a few papers.

However, as good as the reason are to get a rent to own home contract you also need to consider the negative to them as well.

The Bad Reasons

First off, if you decide to buy the home and you would happen to be laid off from you job and get behind on payments and even worse get evicted you would lose all of the money you paid thus far including the down payment money to buy the home.

Second, having bad credit can be also give you some issues if you have to get financing once you decide to buy the property.  If you fail to come up with the proper financing you could lose everything  you’ve stuck into the property.

Third, you also need to consider that the land value may change as well depending on the area you are buying in.  For example lets say the house you are buying was appraised for $250,000 when you signed the contract but after 3 years of making payments the value drops to $200,000 you may have to still pay the full amount that home was  originally appraised for.

Finally, you need to consider how much more this may cost you versus going the traditional route.  For example if you would have gone the traditional route for a home worth $100,000 at 6%  you would have a mortgage payment around $600 a month.

With a rent to own contract you will likely be paying more than the average rent for a property.  In are example let’s say it’s $1000 a month for rent and $400 is going towards the down payment and the other  $600 will be going toward rent payments.  If you were to spend 3 years paying on the rent to own contract you would end up paying $21,600 toward rent that you could have otherwise put toward your home.

Rent To Own Checklist

Finally, to close this article if you are still considering rent to own contracts I have put together a short checklist for you to consider before you sign on the dotted line.

  • Talk to your attorney. The first thing you will want to do is contact your attorney to review the language in your rent to own contract.  Things like financing and payments should be clearly defined and spelled out.
  • Get your home inspected. Before you decide to buy the home have it inspected for any flaws it may have.  A close family member of mine recently bought a home and noticed afterwords that it needed new wiring which cost him over $5000 to have done.
  • Get an appraisal. Having your home appraised will let you know what it’s true value is worth.  Knowing this could keep you from overpaying on the home.
  • Check your credit. If you decide to buy the home know what financing options are available.  If they don’t offer sellers financing or an assumable loan option and you have to get your own financing and you can’t qualify you could end up losing a lot of money.

Is Rent To Own For You

Finally, is rent to own contracts for you or is it not?  For me I guess it all depends on the situation.  If if you’ve followed the checklist I’ve laid out above you should be OK but if you have a hint of doubt you may want to consider other options like renting or the traditional method of getting a mortgage.  Feel free to share your comments as to how rent to own home contracts have worked for you.

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The Guide Investing In Real Estate For Beginners

August 18, 2010 By 4 Comments

So you want to learn how to invest in real estate.  With so many different books on the subject and experts claiming that you can make big bucks with real estate you’d be surprised to learn that it may not be what you think.  I’m not saying you can’t make money with real estate but to do it is going to require a few things from you.

In this article I’m going to give you a place to start, I’m going to show you the skills you need to get started, the different types real estate investing, tips for getting started, and of course some of the down sides to investing in real estate.

Skills You Will Need

First off, you will need to learn a few skills to get started.  Knowing these things can be the difference between making a bad deal to making great deals.  You never know everything but these will give you a good place to get started.

  • Finance. Knowing how to read the numbers on a deal is very important.  You will need to know how mortgages work, how to calculate the value of a property, and what type of insurance you will need for the property.
  • Appraisal Methods. Next you should have a clear understanding of the different types of appraisal methods used used to value a property.  Without this knowledge you will never be able to asses the value of a property.
  • Property Management. Finally, you should also know how to manage a property.  You need to think like a developer and see the problems with properties before you buy it.  You also have to have the basic understanding of how to handle home wiring, plumbing, and simple property management.  These skills will help you on maintaining a better property but also help you save some bucks as well. 

Types Of Real Estate Investing

Next now that we have a basic understanding of the types of skills you will need to get started to invest in real estate you need to know what type of real estate investing you plan to do. 

  • Flipping.Flipping is a short term investing stategy were you buy a house that may be a bit out dated or run down and fix it back up and sell it a few months later.  This can be a very profitable income if you know what you are doing but it may require a bit of cash flow up front to do it since you may have to make some major repairs to update the home.
  • Buy And Hold. The second method to buying real estate is the buy and hold method.  This is were you buy a property and rent it out for the long term.  With the buy and hold stategy you will have to manage tenates and property and over time that can prove to be profitable especially once you pay the loan off. 

Tips For Beginners

Real estate investing for beginners can tough to rap your head around with everything you got to know.  However if you follow the tips I will lay out for you here you will make a lot less mistakes.  However don’t just take my tips, do your own research as well. 

  • Buy Low Sell High.  The first tip to being successful in real estate is that you must always buy low and sell high.  This is why you need to know how to value properties.  For example, if a seller has a property for sale at $150,000 and you offer him $140,000 you may have a good deal or you may not.  However if you were to know how to value the property you might find that anything over $125,000 is over valued for the area the property is located in and you may end up losing money on the deal.
  • Buy In Good Neighorhoods.  Next don’t buy in places were they have high crime rates.  These kinds of neighorhoods should be easy to spot.  The reason you want to look for good areas is because will have to deal with less crime, drugs, and people destroying your property.  On top of that you will be able to charge a premium for your rentals and in the long run make much more money.
  • Build a Team.  Third build a team to help you with your business.  These people will be able to help you spot the deals and the losers you should avoid.  These people will also help you walk your properties and may provide to very valueable advice.  To get started here are a few people you should look for, an accountant, an insurance agent, a developer, real estate agents, property managers, and a  loan officer.  Having these people can help you with your business.  For example, working with several real estate agents can help you because they will be able to sift through hundreds of properties and find the ones that fit your criteria.

The Down Side To Real Estate Investing

Finally, their are a few down sides to real estate investing.  Of all the sections in this article this is one that is very important because if you can’t handle the down sides along with the good sides this may not be a business for you.

To start the first thing you will have to realize is that you will make mistakes at one point or another.  You may buy a property at to high of a price or get bad tenates.  What ever the mistake you have to be able to keep pushing forward.  If you can’t do that this business may not be for you.

This business is also a high overhead business.  Overtime you will accumulate thousands if not millions of dollars in real estate property.  If property values drops you could lose out big.  If you are not willing to spend some big dollars this may not be a business for you.

Finally, if you can’t see yourself evicting a teneat from your apartments this may also not be for you.  To do this business you will need to have a thick skin and not be afraid to confront someone.  I know everyone hates to play the bad guy but in order to win in this business someone has to be.

Is this business for you?  Can you see yourself doing this business, not just the good but the bad as well.  If evicting people and spending large amounts of money scares you this may not be the business for you.  However, if you can see yourself walking properties, placing offers, and working with your team investing in real estate may just be for you.

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How The Foreclosure Process Works

August 16, 2010 By 4 Comments

In a recent article I talked about how to stop foreclosure on your home.  In this article I want to dig a little deeper and discuss how the actual foreclosure process actually works.  Knowing how this works can be a huge advantage to you to help prevent a lender from foreclosing on your home.

What Process Do They Use

The first thing you need to understand is that every state has a different way of handle the foreclosure process. For example, Ohio uses will use the judicial process, this is were the court will give the borrower a specific time period to payback what he owes.  If the borrower cannot satisfy the loan the clerk of courts will advertise the property in the local paper as a foreclosure.

They will do this from anywhere from 3 to 4 weeks depending on the state you live in.  On top of that three different parties must appraise the property to asses the value.  The property will then be sold on the steps of the courthouse at no less than two thirds the value of the property.

The judicial process can vary from state to state as well.  For example, in Alabama if their is no power of sale, usually the lender or a representative of the lender is not present they will usually file a lawsuit to sell the property.

Their is also a nonjudicial process the state can use.  However their are only 29 states that use this process.  In this process the power of sale is present and will be in charge of selling the property not the judicial court systems.  This system is very similar in that most properties will be sold on the steps of the courthouse to the highest bidder.

What Kind Of Time line Does Your State Have

The next thing is each state will have is a time line that they follow.  For example, the state of Ohio’s foreclosure time line will usually last around a 150 days.  On the other hand Alabama’s will last only around 30 to 60 days.

A lot of this has to do with the process that they are using.  In my research it has shown the judicial process takes longer and the nonjudicial process does not take as long.  For example Florida and Illinois  time line go from 180 days to 210 days because they only use the judicial method to foreclosure.  On the other hand Michigan and Arizona also use nonjudicial process and their foreclosure process will only last around 60 to 90 days.

Is Their A Right To Redemption

Next, some states will also allow the right to redemption in the mortgage foreclosure process.  This were the current owner is allowed a chance to payback the debt owed within a specific amount of time before the foreclosure process will actually take place.

States like Ohio will allow this were some states such as Arizona and Delaware do not and other states like Alaska will allow it depending on the process they are using.

Do They Allow Deficiency Judgments

Finally, the last thing you need to know in the home foreclosure process is does your state allow deficiency judgments.  If your state allows a deficiency judgment it means that if your home is sold in foreclosure for less than the amount that you owe on it you will owe the lender the remaining balance.

For example, if you bought a home for $150,000 and still owed $120,000 on the home and when the home sold in foreclosure it only brought $90,000 you would still owe the lender $30,000 for the remaining balance.

Learn More About Your States Foreclosure Process

To close this article if you would like to learn more about your states foreclosure process check out foreclosure process.org This site will cover the foreclosure process for all 50 states.  They also offer a great definition resource as well if your having trouble understanding a term or two.

In the end knowing more about your states process of foreclosure can help if you do end up falling into this trap.

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How To Stop Foreclosure: 3 Tips To Keep You From Losing Your Home

August 13, 2010 By 4 Comments

Are you a homeowner who has recently been laid off from his or her job?  In that time the bills have started to pile up and things have started to get worse and worse.  In fact you may even be in jeopardy losing your home because you can no longer make the payments.

Foreclosure has taken away countless thousands of  American homes over the last few years.  In this article I’m going to give you 3 three tips as to how to stop foreclosure once and for all and regain back what was once yours.

Call Your Lender

The first thing you need to know on how to stop a foreclosure is that you need to be straight forward with you lender before things start to get bad.  Once your lender sends you a notice of default on your home it will be much harder to break from the grip of foreclosure.

So call your lender and let them know what is going on.  Tell them you can’t afford next months payment and you need help.  You would be surprised how they will be able to help you out.

In fact if you are someone who has recently refinanced or is still in the early years of their loan you be more likely to get some help since you are still paying mostly interest on your loan and the lender may be more willing to been over backwards for you.

However if you are in the later years of your loan, lenders may not be as willing since they will mostly be receiving principle payments which is less money in their pocket and may put you at an even greater risk of receiving a notice of default.  This can also be a big risk for you since you could lose everything you’ve worked so hard for.

Once you are on the phone with a lender ask them how to stop foreclosure on my house, and they my give you any number of the following options.  First, they may agree to a forbearance and work a repayment plan out with you.  Second, they may forgive the current loan payment you made but this is highly unlikely, and third they may be able to change the terms of the loan to help you work out a better deal in your favor.

Get Help

Next if calling the lender didn’t make a difference you may want to look into getting some help.  However in most cases in order to do that you have to accept that you have a problem and you need some serious help.  You may believe you know how to stop a foreclosure but it can be much tougher than you think.

The first place I recommend getting help is with the National Foundation of Credit Counselors.  This is a nonprofit credit counseling firm who can work with you on a one on one basis to stop foreclosure.  They work with you to come up with a number of options based on your situation to keep you from foreclosure.

To get started check out the NFCC here.

Take Drastic Action

Finally, when all else fails you may have to take some drastic measures.  The first thing you should do is look at cutting any unnecessary expenses like cell phones, Internet, and cable television.

Cutting these thing can help out your expenses drastically but their is more you can do on how to stop a home foreclosure.  Looking into running a yard sale and getting rid of anything you do not need.  Things like motorcycles, snowmobiles, and jet skis are great to have but when it comes to saving your home get rid of them.

Next consider selling your cars, if you live in the city consider using public transportation to get around.  This will not only cut down on having no car loan but you won’t have to also pay for gas and insurance as well.

Finally, consider selling your home altogether and downsizing to something more suitable like a smaller home or an apartment for the time being.  This may all sound a bit over the top but when it comes to being over budget every month or living comfortable I will choose the later.

Finally, just know that even if you do get rid of the house and the car that doesn’t mean you can’t get those things back over time.  I hope this article has helped you come up with some ideas on how to stop foreclosures on your property. Feel free to ask questions below and share your story about your situation.

Chris

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