What should I know about foreclosed real estate?
Alabama real estate continues to be a popular relocation choice in part due to the temperate climate and natural beauty of the state. Whether you are interested in Alabama new homes or pre-existing home sales, one way to save money is to purchase real estate foreclosures.
Buying a foreclosed property is one way to assure real estate values in your portfolio have plenty of reserve equity, but before purchasing a foreclosed real estate it is important to do your homework. Use this handy checklist to evaluate potential foreclosed homes or other Alabama real estate.
1. Determine who holds and manages the property. Many real estate foreclosures are not managed by the same agency that is foreclosing. For example, Housing and Urban Development (HUD) or Veterans Administration (VA) foreclosed homes are often managed by a third party and may require the services of real estate agents who specialize in these listings.
2. Understand how to bid on a property. Depending upon who owns and manages the property each program has different requirements, allowances and bidding processes that must be closely adhered to in order to compete. Some require a minimum bid while others allow a bid below the suggested starting price. Still others only allow owner occupants to bid. Know the rules and regulations of each before bidding.
3. Money Matters. Depending upon the program there may be special financial assistance, loan guarantees, repair funds or other potential funding to help in the purchase of a foreclosed property. However, depending upon the condition a property may not be eligible for full funding or have steep discounts for cash offers.
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How do real estate notes work?
Real estate notes and owner financing used to be popular ways to finance a home during the 70s and 80s when interest rates reached double digits. Given the ever tightening credit and lending requirements put into effect by brokers and bankers throughout the nation, interest in real estate notes is once again gaining momentum among buyers, sellers and investors.
Find out if holding a real estate note is a smart move by using the following checklist:
1. I need to defer taxes on the sale of a property. Holding a real estate note for all or part of the selling price of the property may allow you to defer taxation until a later date making it an excellent tax strategy for those nearing retirement or other life changing events leading to a substantially lower tax bracket.
2. I need to sell a primary home, vacation property or investment real estate in a "buyers market". Holding a real estate note allows you to offer potential buyers flexible terms and payment schedules.
3. I have substantial equity in a property and would like a larger return on my investment dollars. Holding a real estate note can be a great way to diversify your portfolio while earning a higher than average return on your investment.
Remember, a real estate note is secured by the property itself but there are some risks involved. Consult with a competent real estate adviser and tax consultant to determine if a real estate note would benefit your specific situation.
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What should I do if my real estate values drop?
If you have been contemplating Birmingham real estate, or other Alabama homes for sale, but worried about falling home prices you might be missing out on a great opportunity. The current downturn in the economy has created a strong buyer’s market; combined with historically low interest rates, it is a recipe for long term wealth for those who know and understand how to properly evaluate real estate values.
Most people are aware of market values, selling price and tax assessed values but few people take the time to analyze and evaluate other more elusive real estate valuation methods. Savvy real estate buyers and investors would do well to take a second look at alternative real estate valuation methods when considering Alabama real estate.
1. Income Method. One tried and true measure of real estate values is the income to be derived from the property. Add up the costs including: PITI (Principle, Interest, Taxes and Insurance), Repairs & Maintenance, Advertising, Office Supplies, Travel and other related expenses
2. Subtract from the average monthly expected lease or rental rates. To be on the safe side, stick with the more conservative banking estimates and use a 75% occupancy rate (25% of the time it will be vacant).
3. Calculate depreciation for tax purposes. Remember, it is possible to have a paper loss while still having a positive cash flow due to special tax incentives related to real estate.
4. Consider net operating profit or loss.
5. Long term appreciation. Since real estate is a long term investment, use a 5, 7 or even 10 years or longer estimate to determine the total rate of appreciation.
6. Combine #4 (net operating profit or loss) with #5 (long term appreciation) in order to determine your break-even point and long term value of the real estate holdings.
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What is AREC?
If you are thinking of buying or selling Alabama real estate then the following agencies represent the most up-to-date and authoritative resources available.
AREC - The Alabama Real Estate Commission, or AREC as it is more commonly referred to, is the central governing body for the Alabama department of real estate. AREC allows users to check the licensing and status of agents, brokers and appraisers; learn about Alabama real estate law and other consumer information sources. www.arec.alabama.gov.
AMHA - The Alabama Manufactured Housing Association is the authoritative source of information for all Alabama mobile homes and manufactured housing. Locate qualified appraisers that specialize in manufactured housing, find out the latest news, information and events related to Alabama manufactured housing and stay up to date on building codes and requirements. www.alamha.org.
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What are the wealthiest zip codes in Alabama?
There is an old adage that it takes money to make money and one way to make sure your Alabama real estate investment retains its value for years to come is to invest in the best. Not sure where to begin? Use the following to locate the wealthiest cities and zip codes in Alabama.
Top Ten Wealthiest Zip Codes in Alabama
1. Point Clear, Alabama. 36564. With an average Adjusted Gross Income (AGI) per return of $172,500 this small community leads the pack.
2. Birmingham, Alabama. Birmingham Alabama real estate is highly variable and includes some of the least expensive and most expensive zip codes in the state. With an AGI ranging from $72,000 to $172,000, the following Birmingham zip codes made the top ten list:
- 35223
- 35238
- 35202
- 35253
- 35213
- 35219
- 36652
- 36616
- 36633
5. Tuscaloosa, Alabama. 35403. With an AGI of $43,612 per return, Tuscaloosa, Alabama real estate remains a viable yet affordable alternative.
With the help of the Homes and Land search tool it is easier than ever to locate the perfect Alabama real estate in the zip code of your choice. Simply type in the zip code, type of property desired and view thousands of listings from the comfort and convenience of your home.
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What should I consider before going through a real estate foreclosure?
Over the past several years many people took out more mortgage than they could afford, leading to escalating real estate foreclosures. If you are one of those hit with increased interest rates, it is a good idea to think twice before contemplating the possibility of walking away.
1. Housing is a Necessity. When calculating the cost of home ownership it is a good idea to compare it to renting - after all, you have to live somewhere. Unlike a fixed interest rate mortgage where your monthly payments remain the same, rental rates can rise rapidly.
2. Unable to Purchase Again. Newly proposed legislation by Freddie and Fannie propose limiting a borrower’s ability to purchase a new home for up to five years if they walk away from an existing mortgage. Since the majority of home loans are underwritten or sold to these quasi-governmental agencies, this could seriously impact your ability to purchase another home for years to come.
3. Rising Interest Rates. Even as home prices stabilize or even decline, rising interest rates can more than off-set the long term savings in the price of a home.
4. Still in Debt. Restrictions on bankruptcy filings increasingly require a restructuring of debt rather than elimination. Depending upon your personal situation, you may find yourself out of a home and still owing thousands of dollars if the house sells for less than the cost of the mortgage plus fees.
If you are contemplating a real estate foreclosure then take time to objectively analyze the situation:
- Real estate is a long term investment. In the seventies and early eighties, real estate throughout much of the nation experienced sharp declines but fully recuperated after several years. Instead of going through foreclosure, find out if you qualify to refinance.
- Calculate the total cost. Losing a home is a painful and expensive process but it will only worsen the situation if you must restructure the debt and then be forced to grapple with ever increasing rental rates.
- Consider tax incentives. Many people who believe they are losing money on real estate find they are actually able to break even once the tax incentives are taken into consideration. Be sure to speak to your financial adviser to make sure you have obtained all the tax deductions you are entitled to.
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