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An Agent’s Help Can Improve Your Return

As written by Dave Kaercher a Colorado Realtor.

A skilled, knowledgeable, experienced real estate agent is one of the best assets a real estate
investor can have.

Whether you’re diving into the real estate investment pool for the first time, or you’re an
experienced investor, a trained real estate agent can perform many functions more efficiently
and effectively than you yourself can. And by the way, you don’t have to be wealthy to invest
in real estate; nearly half of investors in 2009 earned $75,000 or less.

The value of an agent goes far beyond showing properties.

“Realtors are up with current trends,” says Dave Kaercher, a Sales Associate with RE/MAX
Properties in Colorado Springs, Colo. More than one-third of his business involves investors,
with whom he’s worked for many years.

“We’re going to classes, taking continuing education, staying up to date,” he says. “We’re out
in the market every day, we know the best areas to purchase investment properties, and we
know where the best areas might be in the future. It’s the knowledge we bring to the table that
makes a real difference. Investors can’t stay on top of these trends like agents can.”

Why now is a good time to invest.

A well-schooled agent can serve as a valuable counselor for investors.

“We can make sure you pay the right price - and sell for the right price when the time comes -
show you what’s happening in the rental market, help you decide whether to buy and hold or
re-sell quickly, and provide other critical advice,” Kaercher says.

Agents can provide valuable assistance in the area of negotiation too.

“Investors don’t want to spend three or four days negotiating offers,” Kaercher says. “We can
do this for you in a much quicker time frame. We’re going to fight for you.”

Kaercher cautions that you should be certain you’re working with an agent experienced in
helping investors.

“That kind of agent will have a team in place to get things done fast,” he says. “For instance, I
have contractors ready to go on a moment’s notice to get homes fixed up and resold in a
matter of a few months. This can reduce your holding costs considerably.”

Questions You Should Ask Agents
Interested in investing, and want to find the best agent to represent you? Ask these

How many investors have you worked with?

What’s the average time on market for investment properties? (especially rehabs)
Do you know the market’s cap rates?

Can you estimate ROI for a given investment?

Do you know where the good buyers are?

Do you know the areas where I can rehab and quickly sell an investment property?

Do you know the areas where homes get rented quickly?

Many investor-oriented agents have investment teams in place, comprising an
attorney, accountant or tax advisor, loan officer, appraiser, inspector, title officer
and insurance professional. The team makes the buying and selling process quick
and efficient.

Are foreclosures a good investment?
A foreclosure property is a home that has been repossessed by the lender because the owners
failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic
conditions affect the number of foreclosures, too. Many people lose their homes due to job
loss, credit problems or unexpected expenses.

It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise
inexperienced buyers to hire an expert to take them through the process. It is important to have
the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court
judgments are cleared or at least disclosed.

Are there different types of foreclosures?
Judicial foreclosure action is a proceeding in which a mortgage, a trustee or another lien holder
on property requests a court-supervised sale of the property to cover the unpaid balance of a
delinquent debt.

Non-judicial foreclosure is the process of selling real property under a power of sale in a
mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable
to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue
a policy.

How do I find a foreclosed property?
In most states, a foreclosure notice must be published in the legal notices section of a local
newspaper where the property is located or in the nearest city. Also, foreclosure notices are
usually posted on the property itself and somewhere in the city where the sale is to take place.

When a homeowner is late on three payments, the bank will record a notice of default against
the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to
the highest bidder. The financial institution that has initiated foreclosure proceedings usually
will set the bid price at the loan amount.

Despite these seemingly straightforward rules, buying foreclosures is not as easy as it may
sound. Sophisticated investors use the technique so novices may find themselves among stiff

How does HUD affect my buying a foreclosure?
If you are strapped for cash and looking for a bargain, you may be able to buy a foreclosure
property acquired by the U.S. Department of Housing and Urban Development for as little as
$100 down.

With HUD foreclosures, down payments vary depending on whether the property is eligible for
FHA insurance. If not, payments range from 5 to 20 percent. But when the property is FHA-
insured, the down payment can go much lower.

Each offer must be accompanied by an "earnest money" deposit equal to 5 percent of the bid
price, not to exceed $2,000 but not less than $500.

The U.S. Department of Veterans Affairs also offers foreclosure properties which can be
purchased directly from the VA often well below market value and with a down payment amount
as low as 2 percent for owner-occupants. Investors may be required to pay up to 10 percent of
the purchase price as a down payment. This is because the VA guarantees home loans and
often ends up owning the property if the veteran defaults.

If you are interested in purchasing a VA foreclosure, call 1-800-827-1000 to request a current
listing. About 100 new properties are listed every two weeks.

You should be aware that foreclosure properties are sold "as is," meaning limited repairs have
been made but no structural or mechanical warranties are implied.

You can only purchase a U.S. Department of Housing and Urban Development property
through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of
the sales price.

Where do you find government foreclosed homes?
The U.S. Department of Housing and Urban Development acquires properties from lenders who
foreclose on mortgages insured by HUD. These properties are available for sale to both
homeowner-occupants and investors.

You can only purchase HUD-owned properties through a licensed real estate broker. HUD will
pay the broker's commission up to 6 percent of the sales price.

Down payments vary depending on whether the property is eligible for FHA insurance. If not,
payments range from the conventional market's 5 to 20 percent.

Buying a foreclosure property can be risky, especially for the novice. Usually, you buy a
foreclosure property "as is," which means there is no warranty implied for the condition of the
property (in other words, you can't go back to the seller for repairs). The condition of
foreclosure properties is usually not known because an inspection of the interior of the house is
not possible before the sale.

In addition, there may be problems with the title, though that is something you can check out
before the purchase.

Buying directly at a legal foreclosure sale is risky and dangerous. It is strictly caveat emptor
("Let the buyer beware").

The process has many disadvantages. There is no financing; you need cash and lots of it. The
title needs to be checked before the purchase or the buyer could buy a seriously deficient title.
The property's condition is not well known and an interior inspection of the property may not be
possible before the sale.

In addition, only estate (probate) and foreclosure sales are exempt from some states’
disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution)
who has recently acquired the property through adverse circumstances and may have little or
no direct information about it.

Can I get financing on a foreclosure?
One reason there are few bidders at foreclosure sales is that it is next to impossible to get
financing for such a property. You generally need to show up with cash and lots of it, or a line
of credit with your bank upon which you can draw cashier's checks.

What are trustee sales?
Trustee sales are advertised in advance and require an all-cash bid. A sheriff, a constable or
lawyer acting as trustee usually conducts the sale. This kind of sale, which usually attracts
savvy investors, is not for the novice.

In a trustee sale, the lender who holds the first loan on the property starts the bidding at the
amount of the loan being foreclosed. Successful bidders receive a trustee's deed.

Is it smart to even consider a fixer-upper?
It depends. Distressed properties or fixer-uppers can be found anywhere, even in wealthier
neighborhoods. Such properties are poorly maintained and have a lower market value than
other houses in the neighborhood.

Many experts recommend that before you make such an investment, first find the least
desirable house in the best neighborhood. Then do the math to see if what it would cost to
bring up the value of that property to its full potential market value is within your budget. If you
are a novice buyer, it may be wiser to look for properties that only need cosmetic fixes rather
than run-down houses that need major structural repairs.

Is there a tax break for a fixer-upper house if it is considered historical?
Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent
investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the
National Register of Historic Places or so designated by an appropriate state or local historic
district also certified by the government.

The tax code does not allow deductions for the demolition or significant alteration of a historic

The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan
program is designed to facilitate major structural rehabilitation of houses with one to four units
that are more than one year old. Condominiums are not eligible.

The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property "as
is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the
rehabilitation. It can also be done as a rehabilitation-only loan.

Plans and specifications for the proposed work must be submitted for architectural review and
cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period
to finance the construction costs.

For a list of participating lenders, call HUD at (202) 708-2720.

If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to
buy a home, build a home, improve a home, or refinance an existing loan. VA loans frequently
offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan,
the first step is to apply for a Certificate of Eligibility.

Are there special loans for fixer-uppers?
If you need a home loan to buy a "fixer-upper" and remodel it, look at the U.S. Department of
Housing and Urban Development's Section 203(K) loan program. The program is designed to
facilitate major structural rehabilitation of houses with one to four units that are more than one
year old. Condominiums are not eligible.

A 203(K) loan is usually done as a combination loan to purchase a "fixer-upper" property "as is"
and rehabilitate it, or to refinance a temporary loan to buy the property and do the
rehabilitation. It can also be done as a rehabilitation-only loan.

Investors must put 15 percent down while owner-occupants are required to come up with only 3
to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements.

Two appraisals are required. Plans and specifications for the proposed work must be submitted
for architectural review and cost estimation. Mortgage proceeds are advanced periodically
during the rehabilitation period to finance the construction costs.

What are building codes?
Building codes are established by local authorities to set minimum public-safety standards for
building design, construction, quality, use and occupancy, location and maintenance. There are
specialized codes for plumbing, electrical and fire, which usually involve separate inspections
and inspectors.

All buildings must be issued a building permit and a Certificate of Occupancy before it can be
used. During construction, housing inspectors must make checks at key points. Codes are
usually enforced by denying permits, occupancy certificates and by imposing fines.

Building codes also cover most remodeling projects. If you are buying a house that has been
significantly remodeled, ask for proof of the permits involved before you purchase to avoid
future liability for fines.

How do I find a good contractor?
While hiring contractors recommended by friends is usually a safe route, never hire a
construction professional without first checking him or her out. If your state has a licensing
board for contractors, call to find out if there are any outstanding complaints against that
license holder. Also, call your local Better Business Bureau to see if there are any complaints
on file.

If you are satisfied with the answers you find there, interview the contractor candidates. Ask
what kind of worker's compensation insurance they carry and get policy and insurance
company phone numbers so you can verify the information. If they are not covered, you could
be liable for any work-related injury incurred during the project. Also be sure that the contractor
has an umbrella general liability policy.

If they pass the insurance hurdle, next check some of their references. A good contractor will
be happy to provide as many as you want.

Finally, don't let yourself be rushed into making a decision no matter how competitive the
market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end
up losing your money.

Is remodeling worth the price and time?
Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that
question. The most important point to remember is that remodeling a home not only improves
its livability for you but its "curb appeal" with a potential buyer down the road.

Most recently, the highest remodeling paybacks have come from updating kitchens and baths,
home-office additions and extra amenities in older homes. While home offices are a relatively
new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding
a home office, according to the survey.

How do I look for fixer-uppers?
You can find distressed properties or fixer-uppers in most communities, even wealthier
neighborhoods. A distressed property is one that has been poorly maintained and has a lower
market value than other houses in the immediate area.

Ascertaining whether the property you're interested in is a wise investment takes some work.
You need to figure what the average house in a given area sells for, as well as what the most
desirable houses in that area are like and what they cost.

Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be
completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and
new appliances. You should avoid run-down houses that need major structural repairs. A house
price that looks too good to be true probably is. A smart buyer will find out why before buying it.

The basic strategy for a fixer is to find the least desirable house in the most desirable
neighborhood, and then decide if the expenses needed to bring the value of that property up to
its full potential market value are within one's rehab budget.

Condos, Apartments & Single Family
What are the differences between condos and single-family homes?
Using appreciation as a measure, condominiums in some areas have been as profitable an
investment as single-family homes in the past five years. And in some markets, condos
appreciated even more, according to some experts.

While single-family homes have been the preferred investment by homebuyers, changing
demographics are helping make condos more popular, especially among single homebuyers,
empty nesters and first-time buyers in high-priced markets.

Also, the condominium community has worked hard in the last few years to overcome image
problems brought on by homeowners association and developer disputes as well as all too
frequent construction-defect litigation.

Should I be looking into condos?
While condos never had the kind of appreciation experienced by single-family homes in the go-
go 1980s, most ultimately have not lost value, say some experts. And with high prices in many
urban markets and more single homebuyers in the market than ever before, the market for
condos is strong.

As with any home purchase, you should do your homework about the neighborhood or
development before you buy. In the case of condominiums, it is important to read the past six
months of homeowners association minutes to see how effective the board is and to learn
about any possibly detracting issues (such as protracted litigation with the developer).

The condominium community has worked hard in the last few years to overcome image
problems brought on by disputes and lawsuits. Associations are becoming more sophisticated
about property management and taking steps to prevent legal problems and disputes.

Condominiums have held their value as an investment despite economic downturns and
problems with some associations. In fact, condos have appreciated more in the past few years
than when they first came on the scene in the late 1970s and early 1980s, experts say.

While there are lots of reports about homeowner's association disputes and construction-defect
problems, the industry has worked hard to turn its image around. Elected volunteers who serve
on association boards are better trained at handling complex budget and legal issues, for
example, while many boards go to great lengths to avoid the kind of protracted and expensive
litigation that has hurt resale value in the past.

Meanwhile, changing demographics are making condominiums more attractive investments for
single homebuyers, empty nesters and first-time buyers in expensive markets.

How do homeowners associations work?
Learn everything you can about the homeowners association before you buy into a
development governed by one. The association's financial, political and legal conditions are
very important to your investment and quality of life.

When run properly, homeowners associations maintain the common grounds and keep civility in
the complex. If you follow the rules, the association should not intrude on your privacy or cost
you too much in association dues.

Poorly managed associations can drag down property values and make living there difficult for
residents. Start by studying the association’s covenants, codes and restrictions, or CC&Rs, and
find out if you can live by them. For example, if the rules prohibit loud music after a certain hour
and you like to play your CDs late at night, this may not be the place for you. Don't move in
thinking you can get away with violating the rules or change them later because you may find
yourself in turmoil with determined neighbors firmly in control of the association board.

Find out all you can about the association's finances. Beyond reviewing the budget, talk to the
association treasurer and find out if dues are expected to increase and if any special
assessments are planned. Ask if special inspections have revealed problems with roofs or
plumbing that may cause a dues hike or special assessment later on.

Call and meet with the association president. If you are the type of person who despises
intrusions into your private life and the president seems more interested in gossip about the
residents than maintaining the property, this may not be the right condo complex for you.

Speak with residents to get their views on the association's finances, its property manager, how
it operates and any politics. Associations are volunteer organizations with elected boards, like a
mini-government, so politics can enter the picture and spoil a good thing.

Lastly, take some time to understand how homeowners associations are organized and how
they conduct business. Like all real estate investments, the more you know the better off you

Is it difficult to project rents on rentals?
If you are buying a rental income property and applying for a loan to do so, the lender will
require an area rent survey by a certified appraiser. The amount a landlord can expect to
receive in monthly rent largely depends on what the property has rented for in the past, the
condition of the building, its location and the current housing market.

Lenders also look at other cash-flow considerations. They want to know if you have enough
reserves on hand to cover predictable and unforeseen expenses, such as property insurance,
taxes, regular maintenance and repairs.

Vacation Homes
Are vacation homes a good investment?
You can buy a vacation home today for investment purposes as well as enjoyment. And yes,
there are tax benefits.

Some people buy a vacation home to use as a permanent retirement home later, which allows
them to get ahead on their payments. Another benefit is that the interest and property taxes on
a vacation home are tax-deductible.

Some real estate experts predict that vacation homes will appreciate in value due to rising
demand from the aging Baby Boom generation. You also can depreciate the property if you live
in the house less than 14 days a year.

You also need to consider whether you can afford to carry two mortgages, pay for the extra
utilities and maintenance costs, and how this investment fits into your total personal finance