It is still the American dream to have our own piece of land. It is estimated that more than 70 million Americans own their own home. With the growing interest in real estate, it’s easier than ever to get approved for a loan and move into the home of your dreams. However, real estate is no longer just about carving out your part of the world, it’s a booming business and a game with ups and downs left and right.
Some growing trends in the housing industry include buying foreclosures, investing in new homes, investing in new construction, obtaining interest-only loans, and using reverse mortgages; all are increasing in popularity. The market has gone from working for your home to learning how your home can work for you. But, like all genie in a bottle, there’s often a catch to making your wishes come true.

Here are some pros and cons of these growing housing trends:

foreclosures

A foreclosure is a home or property that has been repossessed by the bank or mortgage company because the previous owners failed to make their payments.

advantage

• Because the mortgage company would like to get rid of the property as quickly as possible, the house is often sold or auctioned off for significantly less than its market value. Often, the house is sold only for what is owed.
• Foreclosures often give those who could not afford their dream home an opportunity. Sometimes you can get a great property at a great price.

cons

• Sometimes, especially at auctions, foreclosures are sold “invisible site.” Which means you could be buying a house with a whole host of problems. And in the end, the money saved on the purchase of the property could easily be spent on repairs.
• This brings us to our second point. Often evictees know they are being kicked out of their home and trash the place before they leave, which could create many top projects to fix for the new owner.
• If address or neighborhood information is available, do some research. Sometimes the house is worth less than the amount of money owed.
• Beware of property liens, such as unpaid property taxes. Consider whether the previous owner was unable to make the payment on the house; they may not have been able to make other required payments. If there is a lien on the property, the state or county may expect the new owner to pay these charges.

flipping the house

Flipping is as old as real estate itself; However, with the astronomical rate at which property values ​​have grown in the last 10 to 15 years, many hobby investors have gotten into the investment game. Often, an investor will buy a dilapidated or foreclosed home and provide it with much-needed care. They will renovate and remodel, upgrading kitchens, bathrooms, floors, and landscaping often in a short period of time. They will then turn around and sell the house for a hefty profit. However, this is a risky business and there is a huge window for failure. Just like in gambling, there is the chance to win big, but there is also the chance for big losses.

advantage

• If done correctly, a lot of money can be made very quickly. Sometimes investors finance double or triple what they originally put into the property.
• There is great potential to learn how real estate works and therefore some become experts and in some cases do a full time job remodeling homes.

cons

• This is a high risk endeavor. Sometimes the cost of renovations, mortgage, and time ends up costing more than your eventual profit margin.
• Often these houses need a lot of work. For the best returns, kitchens, bathrooms, and floors need to be replaced. Some may get away with splattering a coat of paint and calling it good, but these are not the people who roll in the dough.
• Find out if you can pay for the property in advance. There’s no use buying a house and sitting in it for several months if you can’t pay not only the bank, but also your contractor, landscaper, and real estate agent. Make a plan before you spend a dime.
• Most pinball machine buy houses that are several years old and often have unexpected problems below the surface such as cracks in the foundation, termites or mold. Have a backup budget in case renovations don’t go as smoothly as planned.
• Usually, the investor has to pay the realtor’s commission to the buyer and the seller.
• Flipping a home too quickly can result in a tax audit. If the money earned from investing in a home is not immediately converted into a similar investment, ie. another move, your gain may be subject to capital gains tax.

Buy a newly built house

Although the concept is old, it appears that many rural farmers are selling their land to large contracting companies. Newly built homes in newly developed subdivisions are a popular choice for those with children or families just starting out.

advantage

• Everything in the house is new. Since no one used the appliances, walked on the carpet, or handled the water heater, everything is still sparkling clean and in great shape.
• Everything in the neighborhood is new. Newly developed subdivisions usually mean new parks, schools, and shopping centers will soon be built to create an all-inclusive community.
• New houses are usually larger than existing houses. They have more bedrooms, bathrooms, and square footage.
• Contractors allow prospective homeowners to customize many amenities, such as countertops, flooring, or stainless steel appliances.
• New homes generally appreciate faster than existing homes.

cons

• Everything in the house is new. Unfortunately, newer is not always better. Sometimes new products don’t work as well, there are bugs and problems that even manufacturers and contractors don’t know about, and new owners are the ones writing nasty letters about how easily their new dishwasher clogs or how quickly it cleans up. it flooded the basement in a large amount of water. rain.
• New houses cost more. Although new homes are typically larger than existing ones, they are also priced higher than their existing counterparts. Not only are you paying for the lot and construction of the home, but the price typically includes subdivision development costs like water, sewer, and roads.
• Finishing touches such as landscaping and basements are often left unfinished.

interest only loans

With an interest-only loan, you only pay the interest on your home for the first five, 10, or 15 years of the loan, creating lower payments for the first few years you’re in the home. This often allows people to access homes that they would not normally be able to afford with a traditional home loan.

advantage

• Payments are significantly lower in the first few years of ownership. Therefore, you can afford a more expensive house at a cheaper price.
• Your payments are 100% tax deductible for the term of your interest payment.
• Paying lower payments up front can free up money to invest and put into the home later.
• If you can sell the house within your interest period, usually five or 10 years, and the house has appreciated, there is a chance of a return on your investment.

cons

• After your interest period ends, your house payment could double once you start paying down the principal.
• There is a chance your house could be upside down if it doesn’t appreciate or the market levels out. So you owe more than the house is worth.
• The technicalities of the loan can be confusing for the average person. There are many details and loopholes that favor the bank or mortgage company, not the owner.

reverse mortgages

These mortgages are only available to people over the age of 62 and must have their home paid off in full. These work like a reverse loan. The mortgage company will appraise the home and pay you what it is worth in payments, a lump sum, or credit. You do not have to return it as long as you continue to live in the home. This includes if you move or die.

advantage

• There are no monthly payments to a bank or mortgage company. The loan does not have to be repaid as long as you continue to live in the home.
• You do not need an income to qualify.
• The owner retains full ownership of the property and can stay in the house for as long as they like. No one will try to kick them out or acquire the house.
• Money from home can be used to help pay for medical bills, prescriptions, or property taxes. These are all necessities for the elderly, but difficult to maintain on a fixed income.
• If the reverse mortgage is obtained late enough in life, the equity can help pay for nursing home care.

cons

• This option is only available for seniors.
• As the equity in the home decreases, the debt increases.
• The loan must be paid in full when the last borrower dies, sells the house, or moves.
• If you have to go to a long-term care facility, the house will have to be sold, the loan will have to be paid back first, and what’s left will go into your care. Sometimes this amount may not be enough to provide the highest standard of living.
• Receiving money from home may have tax consequences and may affect eligibility for federal or state programs.
• When the resident dies, the rest of the family must repay the loan as a repayable debt.

While none of these ideas are new, many are gaining momentum and becoming more popular with first-time homebuyers, young couples, and seniors. The trick is to be careful what you wish for, because the genie’s fine print can trap you in the bottle in the end.

Means

AARP. (2000). Be a Wise Consumer, Driving Safety, Money Management, Home Modification – AARP. Retrieved on March 9, 2007 from http://www.aarp.org/money/revmort/

Barta, P. (2005). Real Estate Newspaper | Changing ownership can be risky business. Dow Jones & Company, Inc. Retrieved March 9, 2007 from http://www.realestatejournal.com/columnists/housetalk/20030228-barta.html

eHow, Inc. Use of this website constitutes acceptance of eHow. (2000). How to Buy a Foreclosed Home – eHow.com. Retrieved March 9, 2007 from http://www.ehow.com/how_111013_buy-foreclosed-home.html

flippinghouse tips (2006). Tips, ideas and secrets of Flipping House. Retrieved on March 9, 2007, from http://www.flippinghousetips.com/

Glink, IR (2006). Buy new house or existing house? – Pros and cons of buying a new construction. ThinkGlink, Inc. Retrieved March 9, 2007 from http://www.thinkglink.com/Buy_New_Home_or_Existing_Home.htm

Lamoreaux, S. (nd). Using a reverse mortgage. Retrieved March 9, 2007 from http://www.longtermcarelink.net/eldercare/using_reverse_mortgage.htm

Max, S. (2005, March 7). The pros and cons of interest only loans. . LP Cable News Network. Retrieved March 9, 2007, from http://money.cnn.com/2005/03/07/real_estate/financing/interestonly/index.htm

(2006, February 15). Record of Achievement – Expansion of home ownership. Retrieved March 12, 2007, from http://www.whitehouse.gov/infocus/achievement/chap7.html