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Shake, Shake, Shake, the Shyster: Buying Real Estate Information

Shake, Shake, Shake, the Shyster: Buying Real Estate Information

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By Elaine VonCannon, ABR, SRES, Associate Broker, Notary, Team Leader, Property Manager, Award Winning Agent

The real estate industry is like any other, there are those who offer sound advice and expert knowledge and those who offer get rich quick scams. There are some popular real estate schemes that have merit, but all of them should be carefully analyzed. Most of these schemes only apply to certain situations and cannot be used by the general public. Many of them also have serious risks, be careful you don't waste your money and time.

The Myth of "No Money Down"
A majority of real estate, infomercial gurus claim you can get rich quick by purchasing properties for no money down. This concept is misleading, however, since "no money down" does not mean the buyer can purchase without money. How can you buy if you have no finances? It is also misleading to tell potential buyers they don't need to worry about their credit. Good credit history is essential for any real estate deal. Most of the time a homebuyer purchases with no money down they must agree to a 104% mortgage in order to cover appraisal charges, closing costs and home inspection fees. These types of mortgages have much higher interest rates and cost more money long-term. Also, flipping property is not practical either. The cost of capital gains tax when buying and selling properties is outrageous and the only way to write capital gains tax off your returns is to meet the strict criteria of the IRS. In order to write off capital gains you must own the property for five years and use it as primary residence for two years. In order to avoid the capital gains tax you must exchange the property for a property of "like kind". To learn more about capital gains tax and tax exchange options visit my web site and read my article Increase Your Buying Power With Capital Gains Reinvestment.

The Owner Financing Illusion
As an alternative to traditional financing, owner financing seems like a great idea, however there is more than meets the eye to this plan. This plan almost always benefits the seller more than the buyer. If the seller "carries paper" this means they actually hold the title while buyers work to pay interest only, balloon payments of 10% interest or more, especially buyers with poor credit. The property does not actually belong to the buyer until it is paid off. This allows the seller, who is "carrying paper", to conduct inspections of your property and prevent you from renting or selling your property. This is not true ownership. The best idea for most potential buyers is to improve your credit, put your finances in order and consult a real estate professional. Then apply for a traditional mortgage that will allow you to own your home. This will provide more freedom and a sense of pride.

Beware Of Buying Foreclosures
Buying foreclosures or "buying at the courthouse steps" is risky business that can sometimes lead to making money, but can also lead to huge mistakes. The first issue with this type of real estate scheme is that you must buy "as is" and you can't inspect the property first. The property could have plumbing problems, moisture damage or termites. In these circumstances you could easily purchase a lemon. When buying foreclosures the buyer must also pay with cash and sometimes needs to close within as little as ten days. Finding a lucrative deal requires a huge commitment of time, research, knowledge and judgment. The stages of foreclosure are complicated and you must be certain you comprehend all of the details concerning your potential property. This process can be stressful, as well as, risky and buyers should be sure they are ready for transactions of this kind.

The real estate market is creative and exciting. There are traditional ways of becoming successful and newly inspired alternative ways are always being discussed. Take the time to educate yourself about all the possibilities and all the risks when making real estate choices. One bad purchase can affect all of your future purchases. Consult professionals and always ask questions. Knowledge is the key. To read other educational articles about topics like real estate, mortgages, capital gains tax and more visit my web site.