Welcome to the home buying market! This is an exciting time to be purchasing a home, with an array of new homes coming onto the market these is some excellent value to be found. All it takes is a little time and effort in looking and you can find your dream home for a dream price. But you should always be a smart buyer. There are those out there that will take advantage of someone who is eager to buy so, if you do your homework; the deals will follow.

The first thing you should do is get your finances in order. This involves finding out your credit score, fixing any outstanding issues affecting your credit, ensuring that these are properly released from your report, and finally securing your mortgage before you start looking. When I say secure your finances I do mean being pre-approved fully, this is different from a pre-qualification in that a pre-qualification does not “secure” you any amount of money, it is simply a judgment of whether or not you qualify to receive a mortgage.

Next, start working with a realtor that knows the area you are looking to buy in. This is a huge step so be prepared to move from merely wanting a home, to actively looking for one. Sit down with your realtor and make a list of things you require in a home. This is a list of those things that you can absolutely not be without. Once this is compiled, then list the things that you would like. With these lists ready, its time to start looking at homes. Your realtor should be able to provide you with a complete list of homes that fit your criteria, and some that come close. Also, they will be able to guide you to properties that fit your pre-approved mortgage amount.

After finding a home or homes that suit you make sure to have a certified inspector take a thorough look through the home. Have them check all questionable areas of the home. Don’t forget to have the inspector check for mold as this is something that is often overlooked. If the home passes the inspection than carry on with the offer if you are so inclined. If it doesn’t then either continue shopping, or utilize the necessary repairs as a bargaining point. Usually you should be able to have the cost of these repairs deducted from the cost of the home. Its a good idea to bring in your own contractor or expert to get these estimates. By doing this you know that everything is above board.

Buying a home is a huge process and one that you must be careful to handle with all due care and attention. Such an important investment can benefit you financially for years to come as well as providing safety and financial security. Don’t sell yourself short on what you buy as your home. After all, your family deserves the best don’t they?

First a little story about buying investment property.

My wife and I stayed at a motel in Tucson for a week one winter. Our bill was for twice what it should have been, but since I already paid the correct amount in cash, I thought nothing of it. During our stay, we noticed that the lobby and swimming pool were unheated, and passed it off as frugality. A year later, however, when I read a news story about a new owner struggling to make the motel work, I realized what was really going on.

To prepare the motel for sale, the owner had been using the two most basic ways to inflate the appraised value: decrease expenses and increase reported income. Stopping repairs, turning down the heat, and quietly adding $100 in income to the books every day, might have increased the net income for the year by $45,000 more. With a .08 capitalization rate, that means the appraisal would come in $562,000 higher than it should have. Imagine the the poor guy who overpaid!

To avoid a mistake like this when buying investment property, you need to watch for tricks like these. You also need to understand the basics of appraising income property.

Valuation of income properties start with the capitalization rate, or “cap rate.” When investors in an area expect a return of 8% on assets, the cap rate is .08. The net income before debt service is divided by this to arrive at the value of a property. This is expleained further in another article, but the primary point to remember is that every dollar of extra income shown will increase the appraised value by $12.50 with a cap rate of .08 (Or, for example, by $10, if the cap rate is .10).

Avoid Dirty Tricks When Buying Investment Property

When sellers of income properties increase the net income by honest means, the property should sell for more. However, there are many dishonest ways, both legal and fraudulent, that are sometimes used. Sellers of houses may cover foundation cracks with plaster, but the tricks used by sellers of income properties aren’t about appearance. These tricks are about income and expenses.

One way income can be inflated, is by showing you the “pro forma,” or projected income, instead of the actual rents collected. Demand the actual figures, and check to see that none of the apartments listed as occupied are actually vacant. See if any of the income is from one time events, like the sale of something.

The income from vending machines is a gray area. Many smart investors subtract this from the net income before applying the cap rate, then add back the value of the machines themselves. For example, if laundry machines make $6,000, that would add $75,000 to the appraised value (.08 cap rate), if you included it. However, since they are easily replaceable, adding the $10,000 replacement cost instead makes more sense.

The other important tricks sellers play involve hiding expenses. These can include paying for repairs off the books, or just avoiding necessary repairs for a year. This can dramatically increase the net income, meaning you pay more for the property. It also means you have less income than expected, and deferred maintenance to catch up on.

Ask for an accounting of all expenditures. If a number in an expense category is suspicious, replace it with your own best guess. Then re-figure the net income.

Look at each of the following, verifying the figures as much as possible, and substituting your own guesses if they are too suspect: vacancy rates, advertising, cleaning, maintenance, repairs, management fees, supplies, taxes, insurance, utilities, commissions, legal fees and any other expenses. Do your homework, and avoid seller’s tricks when buying investment property.

You’re ready to buy a house or maybe you’re just considering it.  There is a good chance you’re wondering if the decline in housing prices has bottomed or perhaps has a little more ways to go.  Industry analysts are predicting that in most of the country we will see an uptrend within the real estate market this upcoming spring.  What does that mean as a buyer?  It means your time is limited.

The deals available today will not last much longer.  That information comes right from the experts.  These experts include analysts and season professionals that consistently monitor the real estate market.  The burst of the housing bubble is on its last leg and the market is due for a solid return.  Whether you’re interested in profiting or investing, you are running short on time.  Fortunately the internet has come a long way and can assist you in making sure you are getting the best possible deal.  By this I don’t simply mean the information contained in this article.  I mean the information this article will lead you to. (more…)