What to Ask For
Once you start your search for starter property, you'll find that there are more possibilities than you once would have thought. You can find the best deal by doing your research on the neighborhood and asking questions. When you find property you're interested in buying and are ready to make an offer, find out the answers to three key questions:
Can the property be purchased on a land contract?
Will the seller take no or low money down?
Will the seller take a discount for obvious necessary repairs?
Negotiating a Land Contract Sale
When you find a suitable dwelling that is owned free and clear, ask the owner to consider a land contract purchase — also called a contract for deed, installment plan, or conditional sales contract. If you can get a land contract, you don't have to go to the bank for a mortgage or pay closing costs or points. With a land contract, the owner retains the title to the property and essentially finances your purchase for a predetermined number of years. Your monthly payments, at the mutually agreed interest rate, go directly to the owner. When you've made all the payments, you get title to the property. To negotiate a land contract, you and the owner have to agree on the rate of interest and length of the seller's loan. Some sellers will also ask for a small down payment.
Don't confuse a land contract with an assumable mortgage. Banks today rarely, if ever, let a buyer take over or “assume” someone else's mortgage. In a land contract, the seller owns the property free and clear; there no longer is a mortgage.
Land contracts are a good way to buy income property, often with no money down. And you bypass the necessity of getting a loan and paying related costs and real estate fees. Make certain, however, you'll get enough income from the property to pay for the expenses and the mortgage, plus cover any time that the unit is unoccupied and not bringing in rent.
If the owner will consider a land contract, go ahead and negotiate with her on the interest and the length of the loan and try to reduce or eliminate the down payment. Often an owner is willing to forgo that money and simply collect the monthly payments. Remember, however, the price itself is not negotiable. Always offer the advertised or listed price when entering into a land contract.
Making an Offer on a Handyman Special
If you want to purchase a fixer-upper, don't offer the asking price. It usually is more than the owner expects to get and includes a commission. If the sale is being handled by a real estate agent, some landlords say you should offer no more than 60 percent of the asking price, others say 75 percent.
If a real estate agent is involved, always start with a very low bid. You can negotiate by going higher, but decide in advance how much you want to spend. Your research on housing and the neighborhood will tell you where to set your limit and keep it in mind while you are in negotiations.
If it's obvious that the dwelling needs immediate work, such as putting on a new roof or installing a new furnace, ask if the seller will give you a discount on the purchase price. Sometimes owners will make a deal because they want to get the property off their hands as quickly as possible and not worry about scheduling repairs.
Just make sure the purchase price is low enough that you'll have money to spare for materials and supplies. If there is structural damage, be sure you can do the work yourself. Figure out what materials you'll need, and get cost estimates before you finalize the sale. Add those numbers to the purchase price. If everything adds up to less than what similar properties in good condition are selling for in the neighborhood, then you know you've found yourself a deal. Make your offer and get to work.
