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Creative FinancingOne of the advantages of longevity in the real estate business is remembering other times and other market conditions'
The market is always cyclic. Once upon a time, money was scarce, and interest rates exceeded 16%. Institutional financing was all but non-existant. Buyer still needed a place to live, and financing became creative, to wit:
Owner Financing ' The owner is the lender. Buyer makes a negotiated downpayment, interest rate and terms are agreed upon, and buyer makes the payments to the seller. This is still an appropriate strategy under certain conditions, and can offer significant benefits to buyer and seller.
Barter and Exchange ' The parties use peronsal property for downpayment credit or use real estate as all or part of the purchase price. The real estate exchange can offer significant tax benefits when dealing with commercial or investment properties.
Lease with option to purchase ' Can be used when buyers cash flow is due to improve, or as a way to delay purchase in anticipation of lower interest rates. This is still a good way to buy a 'fixer-upper'.
Rural livingCountry living in the San Pedro Valley has become more and more popular. The valley lights at night are a testimony to a virtual exodus from urban to a rural lifestyle, and the traffic on Highway 90 and 92 during the 'rush hours' is proof that more and more of us are choosing 'elbow room'.
This trend is a sign of our changing lifestyle, a trend toward decentralization, independence, and perhaps a yearning for a simpler, slower paced environment. With the internet and media services, we can have all of the comforts of city dwelling on your own mini-estate.
With the move to the country come some aspects of living that may have been missing for the city environment, like water from your own well, septic tanks, coyotes, and neighbors' roosters. Some people can't take the silence! Perhaps the biggest adjustment is the quantum growth of the land whenever you have to do anything to it. Four acres become a formidable parcel when it comes to mowing and trimming.
Hot TipsThe Real Estate business is changing. If you have not purchased or sold lately, a lot of the ways we used to do things are obsolete. The following are examples that come to mind:
Downpayments: Used to be at least twenty percent. Now (with good credit) it is about five percent or less.
Credit: Used to be based on reports from various credit references. Now bassed on your FICO Score instantly available and highly reliable.
Real Estate Loans: Used to be three lenders in town. Now lots of lenders, even on line (don't go there ' see article on Predatory Lending)
Real Estate Purchase Contracts: Used to be one page, now 10 pages. More is better.
Real Estate Negotiations: Used to take weeks to mail back and forth. Now on fax and e-mail, takes hours.
Real Estate Residential Sales: Used to estimate 60-90+ days on market. Now in the popular price range, 10-20 days or less!
Flood PlainStrange to be talking about flood plains in arid Arizona, but we have `em. Nature has provided clearly defined drainage from the mountains to the river. When we have enough rain to create run-off, excess water flows downhill any which way it can, and usually ends up in an arroyo, which was created by previous flooding. How does this effect real estate? The Federal Emergency Management Agency (FEMA) is in charge of mapping flood plains, and defines and area which may be inundated by 100 and 500 year floods. Homes in the 100 year flood plain (12 inches of rain in three days) may be required to have Flood Insurance. These flood plains areas are not always obvious, because sometimes an area my be subject to sheet flooding, which is defined by an arroyo, so it is always a good idea to check the FEMA maps to verify status. County planning and zoning will check your flood plain situation in the county if you fax them with your parcel number at 520-432-9278, or go by their office. In the city limits, check with planning and zoning at the city. P and Z always reviews flood plain status as part of the building permit and subdivision applications.
Unfair LendingIn the last several weeks, egregious examples of unfair lending practices have come to my attention. Lenders are regulated to a degree, but the booming market and cut-throat competition have brought out ingenious ways to bilk unsuspecting or uninformed borrowers.
Lenders are required to explain all loan fees. One borrow was surprised to find a $600 'gratuity' fee listed on his loan cost disclosure. Some lenders pack fees on at closing when it's too late to react.
'Interest only' loans ' Reduce the payment, but the loan goes on forever. The principle balance is never reduced. At some point, the full loan amount must be paid off or refinanced.
'Steering'- Borrowers are not given a chance to shop other lenders and compare costs and programs.
'No Closing Costs' means that costs are absorbed in a higher interest rate.
Lower than market interest rates ' Means that discount points are charged up front to increase the yield of the loan to or above market.
Most lenders are honest and principled. Some aren't. The best way to protect yourself from a predatory lender is to deal with local institutions
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