Expert: Matt Heisler - 5/11/2009

Question
QUESTION: I've been hearing everywhere that the best time to buy a house in now.  Well, how about investment homes?  I want to buy a 1950 home that is selling for $80, 000.  The neighborhood is not a very attractive one and most of the houses are not that well-taken care of.  The nicest home on this particular street sold for $65,000. However, it has been remodeled, stuccoed, etc. all the works.  The house that I want to buy is not so bad-looking, but it doesn't stand out either. And it was supposed to be auctioned, but for some reason it's still on the market.  The starting bid on the house was going to be $23,000.  I would like to make an offer of $34,ooo, but I feel the owners will feel insulted.  As far as I know, it is in foreclosure auction.  What happens next in a situation like this?  And can I call the selling agent to find out the status, or what?

ANSWER: Esther:

1) It's a great-time to buy investment property.
2) I do not consider a single-fmaily home a good investment, unless you're going to do a fix-and-flip
3) If you're going to properly figure out what real-estate is worth as an investment, you need to do a cash-flow anaylsis.  I don't see that here.
4) The property is worth what it is worth; offending the sellers, is not a concern.  Let me put it this way:  Would you rather offend the sellers, get the property, make money on your investment, OR make friends with the sellers & lose money on your investment.  Real estate is not a wine tasting circle!!  It's a serious business, where people make and lose thousands.

Please don't be offended, but you do not sound like someone who is very experience in buying or selling property.  That's OK, very few people are.  That why there are real estate agents.  Find a real estate agent who is an investment property specialist (Here's a hint, if you ask them to do a cash-flow analysis, and don't know what you're talking about, get someone else).  In your situation, you should get someone who has worked an auction and/or short-sale as well.  

There's a lot of risk in this property, and if you aren't careful, you'll risk losing a lot of money.  Get an expert and protect your money!!

Matt

---------- FOLLOW-UP ----------

QUESTION: Thank you for your advice and I am not experienced at all in investment properties.  We probably will not end up buying this property because my husband does not like the idea of the backyard facing a cemetery.  Anyway, here is my question, "We gave $500 of earnest money to buy a piece of land with a resaca."  We have had so much trouble finding out information on this property.  First, the selling agent said there would be no problem with the easement.  Then we find out from the bank that the interest rate is ridiculously high(14.99%) and then we have a hard time getting a survey as no one wants to do it because it's a very old neighborhood and that the surveys done in the 1950s were done wrong along this neighborhood.  Okay, the selling agent had told us we would have no problem with the easement and then we go to the engineering dept and nobody agrees on the easement.  So the interest rates are too high and the so called abandonment of the easement(that the selling agent had assured us) is no longer true.  The realtor does not want to return our earnest money because we took too long.  We had been going to the city, engineering, etc. to find out about this property that no surveyor wanted to do(the realtor found one for us eventually) and everyone was passing the buck.  We never got a straight answer from anyone.  Doesn't this constitute a reason for us getting our earnest money?  And we had even told the selling agent and buying agent that if the easement would not be abandoned, we did not want the land.  And they both agreed that it was fine.  Why, now, are we having trouble getting our earnest money besides the fact that the interest rates are outrageous?  And that's why we were kind of like forced to find something else so as not to lose our earnest money.

Answer
Hello:

Wow.  Esther, try not to be overly offended, but you are hitting the all the high notes on the song, "How not to buy a piece of property and lose your money"

1) You bought from the listing agent direct.  This should be reserved for professionals.  Why not use a buyer agent?  They are usually free.

2) Asking the town about an easement.  Municipal employees, though well intentioned, are not attorneys.  Easements are legal restrictions (or benefits), that real estate attorney should advise you on, if they are in any way material.  Attorneys can read deeds and determine what the restrictions are.

3) Reason for getting earnest money back:  You signed a contract.  The terms of that contract define the reasons, and the timelines, that you can use to get your money back.  If you feel you have honored the contract, get an attorney to get your money back.  If the escrow agent is behaving inappropriately, you'll get your check the next day.

4) Surveyors: Why are you paying for a surveyor for a piece of land you might not buy?  Is the seller picking up that cost? This is going about it the wrong way, for sure.  A good survey in my neck of the woods costs THOUSANDS.  Is that really worth it?

5) Easements:  You can rarely remove them.  Any decent buyer agent would have told you this at once.

6) The interest rate was too high:  You didn't talk to a mortgage broker first????  You need to know what something costs before you buy it.

Shooting first, and then asking allexperts second isn't going to help you if you aren't more careful.  Get a professional team.  A real estate broker, a mortgage broker, and a real estate attorney.  You'll be glad you did.