Real Estate Buying and Selling, Real Estate Investment, Real Estate Guide, Tax Breaks in Real Estate, Commercial Properties, Real Estate Investment, Real Estate financing   Real Estate Buying and Selling, Real Estate Investment, Real Estate Guide, Tax Breaks in Real Estate, Commercial Properties, Real Estate Investment, Real Estate financing 
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Real Estate Buying and Selling

Home > Real Estate > Real Estate Buying and Selling   1 | 2

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The lender will probably require you to purchase fire and casualty insurance on the property you're buying, and may want you to buy a life insurance policy that would pay off the loan if you die. Call several insurance companies and insurance brokers to get the best deal.

Property taxes are assessed against the property itself regardless of who owns the property. If the previous owner didn't pay his property taxes, the unpaid taxes would be a lien against the property even though you now own the property. Normally the seller brings the taxes current as part of the sale. Likewise, if you default on your loan, the lender would be stuck with the property tax bill in order to prevent eventual loss of the property for unpaid taxes.

To avoid that possibility, the lender might estimate your annual property tax, divide that sum by 12, and charge you a pro-rated portion of the bill monthly through what is commonly called an "impound account". When your property-tax bill comes, the lender will pay it directly out of your impound account. The problem with an impound account is that you usually aren't paid interest on the money that accrues in it. It's better to avoid such accounts if you can providing you'll be able to come up with the cash to pay the tax bill when it's due.

The vast majority of all real estate transactions involve the use of an escrow company. This company is a neutral third party in the transaction. Legal instruments and funds are deposited with the escrow company, and it carries out the provisions of the agreement. When all these provisions are met, the property officially changes hands and the escrow company charges a fee for its services.

When you're negotiating for a loan, remember to consider its size, interest rate, length and terms of repayment, and the various fees involved in getting the loan. Borrowing money is a flexible process; your terms should get better as the size of your down payment increases.

8: Expenses

Keep a close tab on expenses and make sure each optional expenditure can be justified in terms of higher rental and/or resale value. Some expenditure may be required by law and must be made regardless of profitability. Every optional dollar spent on improvement should pay for itself. Particularly with each major expenditure, evaluate your revenue with and without it. If the expenditure cannot be justified on the grounds that it will more than pay for itself, don't undertake the expense.

9: On-site inspections

Never buy real estate unseen. There is no substitute for on-site inspection. An investigation might reveal a drainage problem; unpleasant odors from nearby factories, sewage treatment facilities or garbage dumps; development of neighboring property in ways that limit the value of your land, or other unexpected problems. If you can't arrange a visit to the property, don't buy it. There is probably enough good property near you for investment purposes.

By the same token, a cursory inspection probably isn't sufficient. Don't let yourself be hurried into a commitment. Carefully examine all aspects of the property. Ask yourself these questions:

1. The Area. What changes are taking place? Are changes likely to work for the benefit of your property's use? Consider road access, utilities and services, and neighboring property development.

2. Competition. What other properties in the same area have the same use? Does your choice have any advantages or disadvantages? Will competitive moves in the area affect you?

3. Facilities and Maintenance. Does the quality of the physical buildings being purchased compare favorably with neighboring properties? Are repairs likely? Is the building structurally sound?

4. Financing. Can the property be financed, both by you and by any subsequent buyer? How committed is the original lender to financing the rest of the development? Would other lenders in the area consider financing the property? If not, why not?

5. Operating Expenses. How stable are the expenses for taxes, management, utilities and insurance? Can long-term assurances be obtained that guarantee these expenses won't rise substantially? Are the figures provided comparable in terms of what other owners of similar buildings are experiencing?

6. Income. If the property provides rental income, are there opportunities to increase rents? How do the rents compare to those in the area for similar property? Is the tenancy likely to be stable?

7. Price Asked. How does the price compare to that paid by other property buyers? Would the same dollar commitment buy good property in a more established area? If the property is income-producing, does the price allow for a profit after taxes and mortgage payments?

10: Professional help

Use professionals when needed, but make sure you really need them. Each of the factors mentioned in the previous part could involve a professional. Lawyers, real estate agents, appraisers, architects, engineers, accountants, contractors, property managers and several other types of professionals may be necessary or useful in certain circumstances. But their services usually don't come cheap; sometimes they may be well worth the money, but at other times you may be perfectly able to perform the task yourself.

If you want to sell your home, for example, a real estate agent will probably charge you a 6 percent commission on the total sales price for his or her help in selling the property. If your house is worth $100,000, you'd have to pay the agent a $6,000 commission. Many areas now have "multiple listing" services, and the use of an agent can save you time and effort, and sometimes give you a higher net price for your property.

On the other hand, if you were willing to sell the house yourself, you might cut your asking price by $2,000 to increase its attractiveness, spend $400 on advertising and $600 on other sales expenses. If your selling efforts are successful, you'll save $3,000. Similarly, in buying real estate, you might save money by dealing directly with a property which is "for sale by owner." By not going through a real estate agent, the seller won't have to pay a commission and can therefore afford to take less.

Sometimes, professional service is unavoidable and even desirable. For example, few investors are capable of designing and contracting for major construction. But you might be able to handle smaller jobs, such as painting and minor repairs, all by yourself. You might also be able to do your own bookkeeping, appraising and property managing if you have the time. On the other hand, you can do the preliminary inspection on properties, to screen out the undesirable, but it might be well worth the cost to have an independent appraisal and inspection of the property you're considering buying. Similarly, an investment property might benefit from professional management and the services of an accountant.

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