****Today we have a guest post by Barbara Fix. She is an outstanding writer and I think that you are really going to enjoy what she has to share with us below. We encourage everyone to visit Barbara at the Survival Diva Blog http://www.survivaldiva.com/.****
Many of us have dreams of buying a cabin or a home on acreage, but if you haven’t been able to afford your dream property, take heart. There may be factors you are unaware of.
Get Your Land For Free!
Yes, you heard right! Places like Beatrice, Nebraska: Curtis, Nebraska: Marne, Iowa; and rural land dotted throughout Kansas are being offered for free in an attempt to infuse sagging populations. If you are not shy of open spaces with few amenities, and you are willing to pre-qualify for a home loan, or build a home within a certain time-frame, it’s time to do an Internet search to see what’s available.
It’s likely this trend will continue as small towns seek to draw new blood. So, what’s the catch? With each new student, these struggling communities receive increased revenue from the government for schools. They also stand to increase their coffers with property and income tax revenues.
The Value should be in the Property, Not the Improvement
If you have your heart set on a specific location, and a modern day run at open plains doesn’t pique your interest, there are great deals on both developed and undeveloped properties out there these days, provided you keep one simple rule in mind. When purchasing property; it’s safest to have the larger portion of investment tied to the property, rather than in the improvement. Historically, acreage does not have a tendency to “crash” as does brick and mortar. When friends or family ask for advice about purchasing a home in the city or a suburb in today’s market, I advise against it. There is a good chance the market will continue to adjust lower than current levels. Having said that, investing in land where you can raise farm animals and grow a garden is not the same as buying a McMansion. Property that allows you to provide for the future is more of a lifestyle choice and it offers the ability to survive whatever the economy has in mind for us in the future.
Where to Find the Best Deals on Rural Property
For Sale by Owner properties are often more affordable, provided the seller lowers the price of their property by the 6%-7% normally paid to a real estate agent. Just make sure that you do your homework when dealing with a For Sale by Owner, so the savings you realize by leaving out a professional won’t come back to bite you later on (more on this later).
Lease Purchase is on the increase and for those concerned over where the market is headed, this approach is safest. Typically, you will pay the normal first, last, and deposit as you would with a rental, and a portion of the monthly “rent” goes towards your down payment. The benefit of a lease-purchase is that you can live the lifestyle you choose, but should the market take a nose-dive, the price can be renegotiated before purchase. Have a professional look over the paperwork of a lease purchase before committing to it.
Raw Land is an option for a handyman who has the skills to build their own cabin or for those who plan to have their dwelling professionally built. While living in Alaska, it was common to meet homesteaders who dug basements and lived there while they built up cash and carry. Others started with a garage or small barn and utilized the space as home base while they built their home as money became available. In the Shelter Section of New Homesteading we will be sharing various building methods such as straw bale, adobe, cob, and other building methods for do-it-yourselfers. If you are handy and don’t mind lots of hard work, you can save an incredible amount of money by building your own home.
One of the biggest upfront costs and risks of buying raw land is drilling a well. It helps to have a perk test done on the property-this is normally provided by the seller-but my advice is to request the owner pay to have the well dug and roll the costs back into the property sales contract. It takes out the guesswork.
Mortgages have never been available on raw, unimproved land, as mortgage lenders attach the improvement (home or cabin), rather than the land, should a borrower default. Before the recent real estate crash, owners often held out for a cash sale on raw land, but those days are long gone, leaving sellers open to owner-carry contracts. When negotiating the interest rate on a loan, keep in mind that the interest rate you pay the seller will be far better than what the banks are paying for interest accrued on monies sitting idly in an account. There is always room for negotiation!
Owner-Carry loans are not the same as lease purchase. They are a binding sales contracts agreed by the buyer and seller at a specific interest rate for a specified period of time. As the buyer of a property, the interest rate on an owner-carry contract can be written off at income tax time.
It’s possible to find screaming deals on Owner-Carry loans, but go into this type of real estate loan with your eyes wide open. Most of the time, you will be dealing with an honest owner who simply needs to get out from under a property. Rural settings come with greater difficulties in regard to a mortgage loan and sometimes lead to sub-prime loans, but as mortgage lenders grow increasingly weary of what they deem as risk, these types of loans have all but dried up. Sellers aware of this are moving towards the owner-carry loan when they own the property outright.
As with any business deal, there is the potential for predatory practices involving real estate that may have you headed for court. Should a seller ask for interest rates that steadily climb over time, or request a balloon payment, beware! There will be more on this later under Avoiding Pitfalls.
Multi-Family Homes now make up a sizeable portion of home sales over the past few years. Groups of families have banded together to help one-another through this shaky time, and I for one applaud them. Gardening and homesteading chores may be shared, and by pooling resources, financial solvency is much more likely.
Mortgage loans for group ownership are fairly simple to do with a Tenancy In Common-but be aware that not all states allow them. When seeking such a loan, it is best to refer to an attorney to address issues as to how taxes and property improvements will be divided. It is also important to agree on inheritance issues should a member pass away.
Thinking Outside the Box may lead to interesting alternatives. If you have a pioneering spirit, what about pulling a 5th Wheel on to an undeveloped property and living in it while you build your home? By selling the 5th wheel once your structure is complete, you stand to recoup the money spent on your temporary shelter. Many have done this with great financial results!
Manufactured Homes have always been a financing challenge, and have been hit hard with the current real estate downswing. Where once sub-prime loans were available for manufactured homes, they are now difficult to find as mortgage lenders grow increasingly squeamish to risk.
For the most part, manufactured homes are located in rural settings due to building codes that disallow them in many towns, cities and some suburbs; therefore great deals can be had on them in today’s market. Sellers who have paid off their mortgages and need to sell have turned to owner financing and in some cases the asking price may be pennies on the dollar.
Before you search, however, be aware that manufactured homes older than June15, 1976, were not eligible for financing even during the real estate boom and certainly will not be in the future. The problem is poor snow loads built into roof structures and issues with poor insulation. Even for those who can afford to pay cash, keep in mind, should you decide to sell your property later on, you may have a difficult time finding someone willing to hand over a chunk of cash.
Other concerns to watch for are manufactured homes that have been moved more than once or a singlewide. A manufactured home that has been moved from, say, a park to a property is disqualified from a mortgage loan. The problem that surrounds a singlewide is their history of depreciation, of which lenders are only too aware. Loans on singlewide manufactured homes are difficult to find, and when found, always come with a high interest rate.
The exception to the rule is purchasing a property that comes with a give-away trailer or manufactured home-usually dilapidated or older than June 15, 1976. This strategy works well for anyone interested in building a home or cabin that needs a roof over their head in the meantime. Be aware that once you’re through building your home, it costs upwards of $1,000 or more to move a trailer or manufactured home from the property, depending on roads and the distance involved.
Avoiding Pitfalls
Earnest Money Agreements include rights of refusal should the property not pass a home inspection or title search. Be certain to include other contingencies such as loan approval. In a case where you must sell an existing home, the earnest money agreement should include a clause stating if you are not able to sell your home within the time frame you and the seller agree on (typically 60 – 90days), your earnest money deposit is reimbursed in full.
Owners cannot be expected to watch out for your interest and they are not held to the standards of professional real estate agents. Always watch out for your interest!
The amount of an earnest money down payment is negotiable, and many times, a deposit of $1,000 is sufficient to prove your interest, but no more.
Seek a Professional if you are unclear about an owner finance, lease purchases, or lease option property agreement, because once you’ve signed, it becomes a legally binding contract.
Title Insurance is relatively inexpensive for the protection it offers a buyer and should be part of a sales agreement, even when it isn’t mandatory to a sales contract. Title insurance protects you against builders liens, property tax & income tax liens, building code issues (like discovering the shed that came with the property is built partially on your neighbors land and must be moved) and it will verify that the seller is the legal owner of the property with the right to enter into the sales contract. They also check that your property in not on a floodplain, something to be avoided, as not only is your property at greater risk, floodplain insurance is usually ten times the expense of a normal homeowner’s policy.
Set up an Escrow Account so that payments you make each month have a third party involved proving payments were made and should a dispute arise, you have proof of payment. Escrow payments can usually be set up to pay homeowner’s insurance and property tax each month, which avoids the annual surprise when the full bill comes due.
Home Inspections should always be performed, even when you are paying cash or the financing is owner finance-especially when it is owner financing. It’s doubtful an owner would offer you a checklist of everything wrong with a home. To find out the substructure of your new cabin is termite-ridden or the foundation is on the verge of collapse after a purchase means untold headaches and legal battles down the road. Should a problem be revealed during a home inspection that may be repaired yourself, this is a perfect opportunity to take the amount of repair and labor off of the sales price. With hard work, you’ll be able to build instant equity in your new property.
Don’t Overpay especially in a market that hovers up and down and plummets without warning. Offering 10%-20% less on a property helps protect your investment. This is not a case of taking advantage of the seller, but rather cushioning your investment against the threat of market decline.
Request the owner of the property pay for an appraisal, to ensure you pay no more than a property is worth. If you can’t get owner agreement, you may pay for the appraisal yourself.
However, if money is tight, there is another way to determine market value of a property through title companies. Most have programs they can run in your specific area to help you determine value. Assessment departments in the area may also be able to help. When all else fails, you can approach a real estate agent and trade their expertise for a modest gift certificate to their favorite restaurant.
Credit Rating Doesn’t Always Compute with owner finance, and it’s not uncommon for the transaction to be done without a credit check. For many, short-term financial hiccups led to dings in credit rating, but in this case, the seller is more concerned with the down payment made to their property. The larger the down payment, the less likely it is that you will default on the loan. Buyer default returns ownership to the seller. Any improvements made to the property, monthly payments, and down payments are kept by the seller, leaving the original owner free to resell the property. For this reason, it is wise to negotiate a cushion of time before the default process takes effect, which can be written into the sales contract should you lose a job or suffer a temporary setback.
Balloon Payments can be a death keel to a property owner when they come due! For instance, should you agree to a balloon payment 5 years from the original property sale agreement, you must either secure a loan or pay cash to the owner by the date agreed upon. Considering rural home loans are getting harder to find, and there is no way of knowing what the state of the market will be at that 5-year mark, you stand the chance of losing the property if you are unable to find a loan or produce cash. This would put you in default and any improvements, payments and down payment is retained by the seller, leaving them free to resell the property.
Don’t Agree to Sliding Interest Rates as many times they are a “hook” to reel in buyers. It is easy to get distracted by that “perfect” property and ignore the ramifications of a sliding interest rate that steadily climbs. This practice makes it easy to pay the property payments at the beginning of the contract, but may force you to refinance soon after, or lose the property.
“Grand fathered” Properties are properties built before new building codes and thus excused from new regulations until changes are made. Therefore, should you find that jewel of a cabin overlooking the lake as perfect once a second story is added, better look before you leap!
Should you attempt to do an addition on a grand fathered property, you may find that your jewel of a cabin just became a noose around your neck.
Visit Survival Diva Blog http://www.survivaldiva.com/ for more information on rural living, gardening, home canning, food storage, and tips on combating skyrocketing food prices.
Survival Diva, Barbara’s preparedness book is available August 1, 2011 http://www.survivaldiva.com/ Download for just $3.95
