How To Buy A House Like A Real Estate Investor: Part 1 – Introduction and Getting Ready To Buy

by John Hoff on April 28, 2008

Real Estate Bubble I really tried. I did, really.

I tried to fit this topic all into one post. But as soon as I stared down that blank digital canvas I said, no way.

I live in one of the riskiest markets around in the US these days, Las Vegas, Nevada. Foreclosure rate is high and job growth has slowed.

People are afraid to buy a house here because they are afraid they will lose money and in no time at all be upside down on their house. They feel buying a house right now is too risky. And the uninformed ones are right, it is too risky – for them.

Informed investors, on the other hand, know there are investing techniques for every kind of market; slow, medium, hot – it doesn’t matter to them. They understand that good house buying techniques go beyond simply getting a low price.

In this how to buy a house series, we will take a look at my mentality when it comes to buying a house in today’s slow market. We’ll take a look at such things as:

  • Getting yourself prepared to buy
  • Ways to cover your closing costs
  • Ways to cover your down payment
  • Hiring the right Realtor
  • What to look for and beware of
  • The different options you have to buy real estate
  • Understanding the difference between getting good terms vs. low price
  • Becoming a problem solver for sellers to get what you both want
  • The offer and getting what you want through the use of contingencies and addendums
  • Buying and dealing with a bank’s foreclosed fixer
  • Do you need an inspection?
  • What is escrow?
  • My take on the future of real estate and the best investment there is

I am a part-time investor and like any good entrepreneur should do, I have spent years studying and applying good investing techniques. There is no one set of rules to follow when it comes to buying a house. What there is, however, is information.

So let’s get you informed, shall we?

Getting Prepared To Buy A House

The first thing you need to do is examine what you can afford, what a bank will give you, and your credit. You do have a budget, don’t you? Until my next post and if you’re interested in the house buying process, here’s a little homework for you to read:

  1. Getting Qualified For A Mortgage – an article I wrote on my old real estate website showing you how lenders view you and what they think you can afford (Update: sorry, I removed this site a while back)
  2. Budgeting 101 – an article I wrote outlining a good budgeting plan to follow to keep you safe
  3. Repairing your credit – a great article by the guys over at Intellibiz showing you how to get your credit report into shape

I promise the rest of this series will not be links for you to read and will be written from things I’ve learned and actual experience I’ve had. In this case, I have already written these 3 articles and it would be pointless for me to write them all here again. If you haven’t read these already, they don’t take long to read and are important to understand as they are the foundation of buying a house and creating wealth through real estate.

Perhaps if this series goes well, I will write another from the opposite angle – selling your home.

For those interested, let me know in the comments.

Be sure to keep up on this topic by Subscribing to our blog. It’s free, there’s no spam, and I only bite on weekdays, Saturdays and Sundays :)

{ 12 comments… read them below or add one }

Theresa April 28, 2008 at 4:49 pm

Good suggestions in your article, brought to mind a question. Back in the “old days” people used to buy houses by assuming the seller’s existing loan. I never hear of that being offered any longer. Do you know if mortgages are even assumable any longer?
Thanks,
Theresa

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John Hoff April 28, 2008 at 5:00 pm

Hello mom :)

In short, yes but rarely.

When I was negotiating with the first bank I tried to go through for my current mortgage, I asked if the loan was assumable (you know me, I always ask for a little more than what’s offered). The loan officer said no but after a little persuasive argument on my side, he spoke with his boss and they agreed to make the loan assumable for me.

Banks will work with you. They want your business and they want your money.

It’s best to get in good with a bank and get them to trust you. This is big. If a bank trusts you they will bend the rules here and there (a little tougher these days, though).

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Barbara Swafford April 29, 2008 at 12:01 am

Hi John,

This looks like it will be a very educational series. I would like to see one on selling too.

What do you think of the new trend of trading properties? Is that the same as 1031′s?

Barbara Swafford’s last blog post..NBOTW Finds Harmony

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John Hoff April 29, 2008 at 4:55 pm

Hey Barbara – no problem. I’ll start working on a “selling your house like an investor” or something after I’m finished with this series. I know a lot about selling and have had to teach a few Realtors some creative ideas (and of course I’ve learned from them).

Did I hear it somewhere that you were a Realtor? Maybe that was someone else?

About trading properties, I’m pretty sure you’re talking about 1031 exchanges. They are a good deal if you can set one up and if you might get hit with taxes.

The advantage of 1031s is you can defer tax penalties if you trade into and out of a house instead of the traditional selling and buying. You will, however, get hit with taxes with the sell of that house (if you didn’t trade again).

This is favorable because it frees up more cash for investors to invest in other houses. The one catch which is great for your heirs but not for you is all taxes are forgiven upon your death. That is, if you die and your property is handed over to your heirs, all the previous built-up taxes are forgiven for them.

Here’s an example of how a 1031 exchange can be so attractive for investors.

Let’s say you own a house you can sell for $200,000. You find a bigger house you want valued at $250,000.

What you could do is set up a multiple escrow closing for the two houses.

You find a buyer for your property = $200,000.
You buy the house you want = $250,000

At closing, your buyer pays you $200,000. You then turn and give the seller of the house you want $50,000 of your money + the $200,000 check your buyer just gave you.

You just bought and sold at the same time and exchanged properties.

If you sell your house before your find a new house you want, you can still do it through a lawyer and you are given time limits to find the next house.

I personally haven’t traded properties before, but if you flip a lot of houses and get hit with taxes, it’s a good idea – especially if you can buy and sell at the same time.

So what do I think . . . I think they’re cool! :)

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Barbara Swafford April 29, 2008 at 6:01 pm

Hi John,

Yes, I used to be a Realtor.

I have some good friends who have done a lot of flipping and they used the 1031 option. It worked great for them. They just kept rolling the money into their next flip.

Now instead of hearing “1031 Tax Exchange”, I keep hearing “trading homes”, so that must be the new buzz word.

Thanks for the great demonstration on how a 1031 works. That, too, would make a good post topic (in case people don’t read your comments).

Barbara Swafford’s last blog post..NBOTW Finds Harmony

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John Hoff April 29, 2008 at 6:10 pm

Uh oh, she used to be a Realtor! I better double check my work ;)

Seriously though, as I was writing the comment I was telling myself, “dang . . . this should be a post.”

Maybe I’ll do one LOL.

I haven’t heard “trading homes” as a new buzz word, but then again, since I opened BTC Hosting I must admit I haven’t been as involved in real estate.

I’m curious to see your comments on tomorrow’s post :)

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Glenn May 5, 2008 at 1:38 pm

Hi John,

I was pointed to your blog by Barbara. You did a good job on repairing your credit. As a former collection executive (no, I did not break knee caps) the use of the Fair Debt Collections Practice Act and Fair Credit Reporting Act are critical for someone to correct their credit report. I would suggest that someone attempting this also request a post card (it is green) from the credit bureau as it proves receipt of the written correspondence. Under the Fair Credit Reporting Act – the credit bureaus have 30 days to investigate and report back to the debtor. This little tip can actually cause negative items to be removed and raise an individual’s credit score.

Understanding the rights afford an individual under the above referenced acts, can and does help individuals to raise their credit scores legitimately. One of my friends, using the appropriate techniques and guidance was able to raise his credit score from 580 to 720 in 120 days. Usually, it takes from 30 to 90 days for an individual to resolve incorrect information on their credit reports.

Yes, many credit reports do in fact have incorrect information. So your advice is critical.

Glenn’s last blog post..Real Estate News 05/05/08

Reply

John Hoff May 5, 2008 at 3:16 pm

Hello Glenn – nice to have you over here. Barbara is a great person and I love her blog, it gets me thinking about what I’m doing over here.

So you didn’t do the knee breaking thing, huh? LOL

A 580 to 720 in 120 days is phenomenal. I used this method on my wife’s credit and we managed to get a collection and several late payments removed from her credit. However, I bet if we did the knee breaking thing we could of gotten a few more things removed ;)

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Raphael May 14, 2008 at 11:09 pm

Excellent information here! I only wish they had a class like this in high school. Information like this is only taught through trial and error these days.

Raphael’s last blog post..Hope Springs Eternal

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John Hoff May 15, 2008 at 4:16 pm

Hello Raphael – I agree. I had to learn all this on my own, there was never a course. Too bad.

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Arizona Discounted Properties April 28, 2009 at 12:31 pm

Very interesting read and a good primer for average joe FHA buyer. This was made a year ago and am curious if you were able to transition to full time or if that was your intention? And as far as the last few comments in regards to financial literacy – I am working with an education company that is providing it free of charge for 15-18 year olds – powerful stuff Here is to profits!

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John Hoff April 28, 2009 at 8:03 pm

Hello there Arizona Properties. Thanks for stopping by and taking the time to comment. I never actually finished this series. I wrote them back when I first began blogging and I before I really knew the ins and outs I just blogged about what I knew – house flipping isn’t really great for web hosting blogs LOL.

No I don’t do this full time. I haven’t flipped a house since about the time I wrote this series.

These days I’m involved with BTC Hosting and blogging. It’s fun and a lot less stressful than house flipping! hehe

Take care and thanks again for stopping by.

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