Your Real Estate Closing Explained Simply by Michelle Blain

Author:Michelle Blain
Language: eng
Format: epub
Publisher: Atlantic Publishing
Published: 2013-04-05T00:00:00+00:00

Section 6.08: Creative Financing

Seller Financed

A seller who is looking to get out of a property quickly or wants to spread the income tax bill created by the sale over several years and owns the property outright is the perfect candidate for seller financed buying. This means the seller holds a deed of trust just as any other lender would while the buyer makes monthly payments to the seller for the entire value of the real estate. When the property has been paid off, the seller gives the deed to the buyer who then owns the property without a lien. With this alternative, the seller may even let you move in without a down payment.

Apartment buildings make great candidates as after a number of years owners can become exhausted by the constant management demands and look to unload the property without a huge year-end tax bill. If you do not want to be a proprietor either, consider the tenants-in-common option. Refer to the tenants-in-common section later in this chapter.

Buy a Smaller House Now and Add On Later, Part I

If you are unable to get financing to meet your square footage needs, seriously consider buying a smaller house and hunkering down for one or two years while it gains equity. Later, you can refinance, pulling out that equity to add on additional space. This is great advice for young couples planning a family, but not until later. Most people can expect income increases as they pursue their careers, making this option that much easier. This is an excellent strategy for those trying to buy into high markets like Tucson, where I live. Remodeling can give you a tax break also, but check tax codes as they change from year to year. Of course, economic factors will affect this strategy. For example, the cost of building supplies tripled just a few months after the 2006 Hurricane Katrina disaster. You will want to consider what is happening around you just as you would when making any major decision.

Here is the down side to this plan. Some types of remodeling add more value than others. The cost of adding a garage can typically be recouped at resale. Other types of additions will only add 50 percent to 75 percent of their cost to the resale value of your house. However, if you are in an expensive market like Los Angeles, you may not have any other realistic way to secure more square footage. Here are a few points to keep in mind.

• Depleting more than 20 percent of the property’s equity could leave you high and dry should you need that resource later in an emergency.

• Expect the contractor’s bill to be 10 percent to 20 percent more than the estimate.

• You will be borrowing against your home. If you cannot repay the borrowed funds, you will lose your home.

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