I would consider myself to be a blogger that is “dropping the ball” if I failed to mention that this week is Money Smart Week. Upon approach of this week on my calendar my nerd scale went right off the measurable radar. Money Smart Week, according to the site, is a public awareness campaign designed to help consumers better manager their personal finances.
Throughout various venues in Chicago and its suburbs are presentations on various personal financial topics. From real estate, to budget and retirement planning to kids and money, with the exception of the credit sessions, I must say that I was very happy to see Money Smart Week veer its way back to the windy city.
At last year’s session my wife and I used the free financial checkup seminars to get a gauge on where our household was at financially, as well as if there were any nuts and bolts we could tighten with our plan. This year we have opted to learn and focus more about a topic very near and dear to us, buying a distressed property.
Our overall financial game plan when it comes to real estate is pretty cut and dry. We plan to buy, in cash, a distressed property as our primary residence. This way we buy at the bottom of the market in a great neighborhood and maximize appreciation over the years.
So obviously there exists a knowledge gap between my plan and what I know. At this point in my life I have never had the experience of witnessing firsthand the financial transactions of a short sell, auction or foreclosure. So with textbook knowledge in hand, my wife and I attended a financial session on buying distressed properties.
The first and foremost lesson that stuck out to me is that in the realm of distressed properties, cash truly is king J! If I can walk in with 100% down and minimal contingencies, I am more likely to get the best price possible and close on the property. But minimal contingencies can be subjective, as my wife and I pretty much have one simple yet loaded one: To be allowed to hire a home inspector to give the property a thorough exam. We have come to expect that when the time comes that we will put more than our fair share of elbow grease into repairing a distressed property, so we are looking for confirmation that the property is free of mold, has a solid foundation and that the walls and/or roof won’t cave in after we move in.
One negative piece of information that I learned is that more than likely, if there are back taxes due that the new owner is more than likely to shoulder that cost. Another is that state law, pending on the state you live in, can stretch out the entire “distressed” selling process by favoring the homeowner that is behind on their mortgage payments. So patience and some extra cash on hand to handle back taxes or certain types of liens are some more weapons we’ll need in our arsenal when we move to buy a distressed property.
In general, homes that go through short sells tend to be in better physical shape than foreclosures. And to find homes that are seriously considering short selling, it’s best to get paired up with a buyer’s agent who has a strong track record and history in distressed property transactions, who has knowledge of seller’s agents that have distressed homes in their inventory. Essentially, if a home is found through a selling agent and is being touted as a short sell, the sellers are serious about getting out from the home.
There were definitely a few more tidbits and pieces of information that I will keep in my back pocket, but those are a few of the major bullet points. I definitely plan to become better educated and eventually become a self-taught expert in buying distressed properties, even before we set eyes on the home we want to buy. So I encourage you as well to get out there and learn, learn, learn and learn everything you can when it comes to personal finance.