Buyers: If it Sounds Too Good To Be True--It Probably Is!

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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?).
  6. 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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 Momentum Realty

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Comment balloon 9 commentsHolly Weatherwax • August 21 2009 02:09PM

Comments

Excellent advice...hope your post is read!

Posted by Li Read, Caring expertise...knowledge for you! (Sea to Sky Premier Properties (Salt Spring)) about 10 years ago

Great way to warn buyers!  You are absolutely right. 

Posted by Irene Tron about 10 years ago

There are 83 properties in my area for $21,250 or less.  The lowest is $3999.  That's less than the Cash for Clunkers credit. 

Posted by Erik Hitzelberger, Louisville - Middletown Real Estate (RE/MAX Alliance - Louisville REALTOR-Luxury Homes) about 10 years ago

Wow, Erik, I stand corrected.  I guess the issue is that they need to be aware of the markets in which they are advertising...

 

Posted by Holly Weatherwax, A Great Real Estate Experience ( Associate Broker, Momentum Realty) about 10 years ago

Excellent advice Holly.

Too many folks get caught up in the moment and often they need to step back and think about the things you wrote here in your post.

Well done my friend!

Posted by Craig Rutman, Raleigh, Cary, Apex area Realtor (Helping people in transition) about 10 years ago

Good advice, Holly. I myself was on the brink of #5 when we moved to Tennessee. My husband thought that we would have to rent at first so I pointed out that no one would want to rent to us with two horses, a pile of cats and two big dogs! I thought we'd be better off buying a starter home to live in until we got our feet under us and then we could either sell it on or keep it as a rental. Good thing we didn't because we'd still be in it and I would be totally miserable!

Posted by Leslie Helm, Real Estate For Trail Riders (Tennessee Recreational Properties) about 10 years ago

Holly - Your point is well made.  It is dangerous to assume that anyone other than a local expert could really give good market advice.  The statistic I shared means absolutely nothing to buyers and sellers in Reston, VA.  And, while I know the Louisville market well, I am certainly not qualified to discuss your area.  People cannot afford to underestimate the value of local expertise.  From your post and blog, Reston area residents need to be calling your number, not chasing pipe dreams advertised on the radio.  

Posted by Erik Hitzelberger, Louisville - Middletown Real Estate (RE/MAX Alliance - Louisville REALTOR-Luxury Homes) about 10 years ago

Holly,

Your suggestions are right on.  I wonder how many individuals will be taken advantage of.

Posted by Richard Weeks, REALTOR®, Broker about 10 years ago

Great advice my friend.

This should be required reading for first time home buyers.

Posted by Craig Rutman, Raleigh, Cary, Apex area Realtor (Helping people in transition) about 10 years ago

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