After the love is gone
With the onslaught of millions of foreclosures, many former homeowners are faced with the frustrating task of finding another home to purchase. Their credit is shot so financing the conventional way is out of the question. The institutional lenders have also tightened up their lending criteria, so even people with great credit may not find financing immediately. So, unless you have a boat load of cash, where does one turn? Step in – The Investors.
There have been a lot of discussions bandied about concerning investors, and how they might sometimes be perceived as vultures waiting at the courthouse steps to bid on homes for pennies on the dollar. The fact of the matter is that investors have stimulated the market, absorbing a lot of the inventory that would otherwise remain on the market. Many investors buy property at wholesale prices, and then sell at retail prices.
Some investors would rather enjoy monthly cash flow, so when they purchased foreclosed property or negotiated a short sale with a lender, they created an affordable inventory that frankly, is very desirable to consumers that need a home at a good price. Let’s say four years ago you purchased a home for $300,000. The home had no pool, and had 1,600 square feet of living space. For one reason or another you could not afford the monthly payments any longer and eventually lost that home to foreclosure. With the decline in prices in today’s market, you can buy a similar home, even with a pool in some cases, but now you only have to pay $150,000 which you can easily afford. So, how does the buyer get qualified to purchase this new home? He doesn’t.
The seller/investor simply requires a down payment and executes an “Agreement for Deed,” or the seller becomes the bank and executes a new mortgage.
We are going to discuss the Agreement for Deed. This technique is not new. In fact, back in the late 1970s and early 1980s, when interest rates were towering 21 percent, this was one of many ways to purchase property when borrowers could not qualify at the high interest rates. At that time, the same agreement was most likely called a Contract for Deed, or Land Contract. It is a variation of seller financing and is still very popular even in great markets. It is an agreement to get the deed to the property at some future date.
The Agreement of Deed is like buying a car. You are purchasing equity as you make payments. If you decide to trade it in after three years, you get the equity you have paid into it. Just like a car, you must do the maintenance. In other words, you pay for the homeowners insurance, take care of any repairs that may be needed and keep the property in good condition, and pay the taxes. If something breaks, you repair it. The agreement identifies the real property, the names of the parties, the date of the agreement, the purchase price and the terms of payment, as well as other provisions relevant to the transaction. It is important to understand what portion of the monthly payment actually goes toward principal. There should also be provisions that specifies what happens in the event of default. Once all of the terms of the contract are negotiated, the parties sign the agreement.
One of the advantages of this type of transaction is that there are no closing costs. And the icing on the cake is that you never have to go to a bank for a loan. The investor/seller holds the deed to the property, so there are no transfer fees to consider.
Where does one go to find these investor properties? Just look in the newspaper and you will find them. Look for those ads that say something like, “Low Down Payment,” or “No Closing Costs.” You can also find properties on Craig’s List. The point is, you don’t have to look far to find the properties. Just be sure you know what you are doing if you have no representation. Some agreements for deed are complex, so if you are not knowledgeable in real estate contracts, seek the legal advice of a competent real estate attorney.
Mario D’Artagnan is a broker associate with The Jim Fischer Team at Gulf Coast Realty Network, Inc. D’Artagnan is a former Florida Real Estate Commission investigator, a former real estate instructor, and a published author. For more information, contact Mario D’Artagnan at: mariodartagnan@yahoo.com, or call 565-4445.