As a result of the meltdown of the real estate industry, there are, indisputably, some really great opportunities for buyers.
Yesterday, I heard a radio commercial advertising an opportunity to buy foreclosed homes. The call to action was an 800 number where you would receive a list of foreclosed properties that you could consider.
The advertisement had the woman telling her friend that she was in a new home for $100 a month. Excuse me?! That would mean that she bought a property with a loan of roughly $17,000 if you assume a 30 year payment and a rate of 6.5% and 20% down-payment. That would be a sales price of $21,250. I am not saying impossible (well, yes, in my area I am) but not realistic. Why would a bank sell you that property? It sounds like a scam to me...and the scariest thing is that they probably get thousands of calls every day.
(In response to one of the comments this post received, I want to clarify that there are areas in the country where it would be possible to buy at this price. In the area where I practice, this is not a reasonable expectation, however, this is the market where the radio ad was running. I was able to find 3 mobile homes at that price or lower, but no condominiums, townhouses or detached homes. Keep in mind the point of this post is to take reasonable, well thought out risks).
If we have learned anything from this recession, it should be that there are some things we need to keep in mind:
- There is no substitution for savings. Save your money and do not over-leverage yourself to purchase things that you cannot afford. We should all strive for investments, but we still need to have that safety net of savings in the bank.
- Risky loans are called 'risky' for a reason. Do not take on a loan that is beyond your comfort level now, or in the future.
- Understand the terms of any loan or investment that you have or wish to make. That fine print has some pretty important information. It is no ones fault but your own if you do not read it.
- A home is the place that you can come at the end of a long day and relax. A rental can be a home, too. Don't succumb to the pressure to buy a home unless you are ready both financially and emotionally.
- When you buy a property, make sure it is somewhere you could stay if you had to. If you don't think you could stay there for more than a year or two, you should not be buying the property in question. You never know what could happen in the short term to derail your plans (does 'recession' come to mind?).
- Buying the house is only the first step; you need to have the resources and enthusiasm to maintain it, too. Unlike a savings account, a house requires constant maintenance and investment. The house payment is only the first of many, many expenses. The bigger the house, the bigger the bills. Electric and gas bills are often a factor of house size. So are maintenance expenses. Be sure you buy a house that suits you, but also that suits your wallet.
I truly believe that if something sounds too good to be true, it probably is (or else I did not read the fine print). And I am an optimist. I have learned through the years that there is nothing that can replace hard work and good planning. All those folks who thought there was an 'easy way' are paying the price as property values plummet and it is difficult to sell their properties. I feel badly for them, but that is what happens when you make investments that you do not understand.
Make sure you trust the people that you work with--but at the end of the day, you must take personal responsibility for your actions.
The old adage that your home is your biggest investment is still true. It is just not your biggest investment account. Remember, if it sounds too good to be true--it probably is!
Be smart, buy smart and enjoy the rewards!
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