Vacation Homes

EASY WAYS YOU CAN DIP YOUR TOE INTO REAL ESTATE INVESTING

Buying rental property and managing tenants can be daunting to a lot of people. Yet, I highly suggest that you open your mind to the idea because it is such a great way to set yourself up for financial independence.

The reason why I like real estate as a vehicle to get passive income is because it's real! I can touch it and see it. It also has been the number one vehicle that people have used throughout modern history to amass a lot of money. Why is this? Because no matter what the current dips or spikes in the economy are, real estate has always steadily climbed in value, especially in major cities and in landlocked areas where no more real estate can be built. It simply has to go up in value because of supply and demand.

Real estate has also worked for me. You may already know about the separate apartment in my basement that I rent out, which pays my whole mortgage. All I do is sit on my rear and collect a monthly check. Every now and then I make a minor repair. I also am in the midst of getting permission from my city to build a small cottage in my backyard to rent out as well.

All the while, I've been doing endless research about how to invest in real estate without having to be a big risk taker. In the process, I discovered some easy ways for you to begin dipping your toe into the real estate game. I'm going to take you on a journey from low risk, low involvement, and low hassle to higher risk, involvement, and hassle. Naturally, the higher the risk, the higher the potential for return.

REITs

REITs stands for Real Estate Investment Trusts. These offer you the lowest risk, lowest hassle way to invest in real estate. If you like the idea of investing in real estate but don't want to look for property, buy it on your own, and fuss with renters, you can put your money in these publicly traded entities. A REIT is a company that owns and generally operates income-producing real estate such as apartments, shopping centers, hotels, and warehouses. You buy a share in a REIT like you'd buy a share of a stock. Talk to a stockbroker or financial expert you trust to find out about the pros and cons.

Real Estate Syndication

A real estate syndication is, in essence, a private REIT that you can start or join. It is just a group of investors who pool their money to buy and manage properties. They do this either because they don't have the resources to buy larger properties on their own, or because they want to spread the risk. They are set up as legal entities, usually as a limited liability corporation (LLC) or a corporation. Depending on the size of the investments, there can be anywhere from a few to 20 or more partners.

To find a private syndication, ask commercial real estate brokers in your town for referrals. Commercial real estate brokers know who the syndicators are because they're always trying to sell them new properties. You can also find private syndicators by joining a local real estate investment group. There are also plenty of syndicators who buy on a national scale. You can find these through investment professionals. A benefit of national syndication is that the managers of these syndications have the whole nation to draw from and they can scout out booming or up-and-coming areas. A disadvantage is that you have to rely on what someone else tells you about a hot area, and you most likely won't ever see the property you invest in.

Form a Partnership

Chris Benis, a real estate attorney said that, as it gets harder to find good cash flow deals these days, he sees more and more people coming into his office to set up private real estate partnerships where two people pool their money to buy property. Chris says the best partnerships are between people who bring different skills to the table, such as a contractor and a person with extra money. The contractor can do the work and the other person can do the financing. To find a partner, start by asking friends, colleagues, and relatives. You should also join a local real estate group and start going to seminars to meet other people who are interested in investing.

Buy and Live in It

Consider buying property and living in it. If you buy a fixer house, you can fix it up as you live there, and then sell it for a profit. Invest the proceeds in something with more units, such as a multiplex. If you can't sell the house for a good price, just live there until prices go back up, which they will in time. If you buy a multiplex, you can live in one unit while your tenants pay all or part of your mortgage. When it appreciates in value, take out enough money to buy another building. Or, you can do as I have done and either buy a house with an existing mother-in-law apartment, or buy a house with good bones for one and get it built or do it yourself.

Get a Good Deal

Real estate experts say that you make your money on a piece of property the day you buy it so make sure you are getting a good deal. How do you know? Research your area. The best nationwide tool is put out by real estate group Marcus & Millichap (www.marcusmillichap.com), which keeps abreast of trends in every area.

A common practice is to buy the worst house in the neighborhood. If you decide to rent the place out, you'll also want to buy in a neighborhood that can provide you with good tenants and a good rental base. Marcus & Millichap keeps track of trends like job availability and influx and outflux of the population, all of which affect the price of housing in your area.

And, most large real estate brokerages in your area should also have research departments. Don't just take a real estate agent's word for it, do your own research so you know when you find a good deal.

Again, I can't stress enough that you should take the time to sit in on a few meetings of a local real estate investment group, just to familiarize yourself with what's going on, make contacts with real estate professionals who are in the investment business, and meet other people just like you who are setting themselves up for financial independence.

INVESTMENT SECRETS YOU NEED TO KNOW

So, how's your 401(k) doing? Is it setting you up for the financial independence you dream of? No? Welcome to the world of wrong investment advice. The truth: Your salary and your 401(k) won't get you the financial independence you want, unless you just love scrimping.

If you were to talk to a small army of financial and mortgage experts, you would get a better, more well-rounded view of the new financial rules that we have to play by today. The rules have been turned upside down, and they are not what our parents and many investment planners taught us.

Most of us were taught to dutifully put money in our 401(k)s and to go out and buy a house with a 15- or 30-year fixed rate mortgage. We were taught to pay it off as quickly as possible to avoid mortgage payments. The goal was to have a free and clear house when we were ready to retire, so that we could live on our pensions and 401(k)s and happily exist in budget bliss. For people like me who went a little further and bought some investment real estate, we still bought that with a 30-year fixed mortgage and attempted to pay it off as quickly as possible.

But things have changed. Most people cannot buy any reasonable investment real estate using a traditional 30-year fixed rate mortgage. If I did, my mortgage payments would be higher than whatever I could take in from rent. This is the case today in attractive, stable neighborhoods in most major cities.

A mortgage broker might try to convince you that you could make things work by using some of the newer types of mortgages. I am used to the traditional way, however, and the newer mortgages seemed too risky. So I went to work researching my options and, in the process, I woke up to a whole new world of financial planning. Here are the seven rules of investing that I learned, some of which you have heard before, and some of which are brand new.

Rule 1: Real estate is a consistent way to build wealth. In a study done of 1,000 millionaires, 70 percent said that they made their money through real estate. They did so by following a conservative and consistent plan to accumulate real estate and let it appreciate in value.

Real estate offers the greatest return on your investment because you get more than just appreciation or rental income. It has incredible tax benefits, great security, and, thanks to new types of mortgages and investment rules, it offers liquidity never before seen in real estate.

The key is to invest in one piece of real estate, let it appreciate in value, then borrow that appreciation and re-invest it in the next piece of real estate. You do this until you either have enough passive income to give you a nice lifestyle, or until you have enough to sell and live on the proceeds.

Rule 2: Stop the insanity of credit card and installment debt. The average family in America carries $30,000-$40,000 in credit card and installment debt, with an 18 percent interest that compounds daily. This is the number one reason why most families are broke when they retire.

Rule 3: Have at least three to four months of emergency savings put away. Many people consider a line on their credit card to be their emergency savings. Wrong! Wrong! Wrong! Get out of that incredibly insane cycle of racking up credit card debt.

Rule 4: Have a financial plan. Mortgage experts will tell you that "failure to plan is planning for failure." Smart money managers plan for worst case and best case scenarios.

Rule 5: Contribute the maximum to your matching retirement plans and monitor the progress at least yearly. If you are not contributing the maximum to a matching retirement plan, you are giving up a load of free money. So get yours up to the maximum starting with your next paycheck. Next, pay attention to the progress your investments are making. Talk to your fund manager at least once a year to be sure your money is invested in the best way.

Rule 6: Diversify beyond the stock market. Most people have all or most of their retirement savings invested in the stock market. When the market crashes, as it periodically does, you crash, too. The only people I know who have managed to beat market crashes are those who take great interest in the market and understand trends and nuances. Unless you love the market and really understand it, you better start diversifying so that you have some money in the market and some in other places.

Rule 7: Use the equity in your home to make money. This is probably the most extreme new rule because most of us were raised with what Joe White calls "depression-era thinking", the idea that a mortgage is a bad thing that you should pay off as quickly as possible.

Make Money Off of Your Mortgage

Today, many financial experts look at mortgages in a whole new way. They should not to be paid off as quickly as possible. Instead, they should be used as a financial planning tool. Under the new rules, they are to be used as arbitrage. Say what? Arbitrage is one of the tools that Warren Buffet used to make his billions.

The Economics Glossary defines arbitrage opportunity as "the opportunity to buy an asset at a low price then immediately selling it on a different market for a higher price." In simple terms, this means that if you buy something for $10, turn around and sell it for $30 and make $20, the $20 you gain represents an arbitrage profit.

So, you borrow money at the lowest cost possible to buy a rental property, let it appreciate, borrow again at a low rate, then buy another piece of property, and so on.

Mortgages typically provide the lowest-cost loans available to us. They also provide great tax deductions. For instance, if your combined federal and state income taxes are in the 33 percent bracket, and you have a 9 percent mortgage, your effective interest rate is 6 percent. The 33 percent marginal tax write-off reduces your true cost of the mortgage by that same 33 percent because you get the money back. Thus, you are earning an arbitrage profit. If you invest that money in another vehicle with tax benefits (i.e., more real estate), your tax benefit is magnified.

Why don't most of us operate this way? Because we have a natural emotional fear response based on being raised with depression-era thinking. But if you're still reading this article, my guess is you're ready for something different.

Most people have an enormous amount of equity sitting in their home that's not earning a dime. When they pull it out, they have an opportunity to earn significant arbitrage. Here's how it works. Let's say your home is worth $200,000 and you have built up $100,000 in equity. You still have an asset worth $200,000 because that's what it's valued at, no matter what you have put into it. But when you pull your $100,000 in equity out of your home to re-invest it somewhere else, you now have assets worth $300,000.

White says that leaving equity in your home is the worst investment you can make. It's like taking a mason jar, filling it with money, and burying it in the backyard. Pretend someone gives you $100,000 cash. Would you store that money in your wallet for months and years? No, you'd probably ask a financial expert for advice on how to invest it. Yet, $100,000 is the average amount of equity that people have in their homes today, not earning one cent. To maximize your financial planning, you must keep all of your assets employed (meaning they're working for you, earning a return) most of the time. If your money is sitting unemployed, that means that 30 to 50 percent of your net worth is not involved in increasing your net worth.

But here's a reason to pay attention to this new way of thinking. Let's say you own a home worth $200,000. You follow the traditional plan and have it paid off by the time you retire, and you don't own any other income-producing real estate. What will you have to live on when you retire? Just your pension, 401(k), 403(b), or other qualified plan. Even though your house is paid off, it is not bringing in any money. Or, let's say you have that same house worth $200,000 and you owe $100,000 on it. You have a job earning enough to pay the mortgage and enjoy life to a certain extent. But you lose your job, as was the case with the couple I profiled in the November 2006 issue. Now what? You still owe your mortgage payments but you have no income. How are you going to pay the mortgage? This is why you need passive income.

Here's how the new system can work for you. According to White, if you pull the equity out of your house, you should:

1. Get rid of credit card and installment loans, all bad, non-appreciating debt except student loans with very low rates.

2. Set up an emergency fund. If you are stably employed, you can get by with three months of savings. If you are in a high-risk position or you are self-employed, set aside six to 12 months of savings.

3. Split the money that is left into two piles. Invest one pile into a liquid investment. For information on this, read Missed Fortune 101 by Doug Andrew. After you have read that, you can call Joe White at 866-460-5570 to get a referral to a financial planner who understands this way of investing. The second pile is what you will use to go out and buy rental property.

Mortgage 101

Now we're at the part that's considered risky'taking out one of the new interest-only or adjustable rate mortgages, rather than a traditional fixed loan. (To learn more about both, read Marya Noyes article on page 5.) But before making judgments, first let's ask the question: Why have banks been pushing 30-year mortgages? Because these mortgages have been incredible cash cows for them. They offer the bank regular, secure payments and an appreciating asset. If you were the bank, you'd be crazy not to push them, too. When you follow the American way and pay the mortgage off early, the bank has even more money to loan out.

If you'd like a good, easy-to-read history of mortgages, download Joe White's book Jumping on the Path to Prosperity, which you can get for free on his Web site. But for now, let me tell you how interest-only loans originated.

In the early 1980s, when housing prices began rising rapidly, wealthy clients of Merrill Lynch, Pierce, Fenner & Smith started withdrawing their brokerage accounts to purchase large homes. Not wanting their big investors to withdraw money, Merrill Lynch came up with the first interest-only mortgage that allowed clients to keep their stocks in play and also buy luxury real estate. Merrill Lynch kept earning profits on the stock accounts and they made a little bit on the loans, which had very low rates. Everybody won. However, since Merrill Lynch is not in the mortgage business, only folks who didn't really need a loan could qualify. So, about eight years ago, a couple of smart guys who were in the retail mortgage business came up with the idea of offering a version of the Merrill Lynch interest-only mortgage to the public. Kirk and Brian Smith today head the fastest growing mortgage lender in the nation'SouthStar Funding.

Overcoming the Fear

The classic fear of using anything but a standard 30-year fixed mortgage is foreclosure. The media has been rife with horror stories of foreclosures resulting from people using adjustable rate mortgages (ARMs) to buy a more expensive house than they could afford. When the rate adjusts and goes through the roof, these people lose their homes.

But White says this fear is not grounded in reality. He explains, "When you look at the data, there are not more foreclosures using ARMs than with conventional mortgages. The number of foreclosures tied to a mortgage product directly parallels the number of mortgages in that category. For instance, if 70 percent of mortgages written are 30-year fixed mortgages, then you'll find 70 percent of mortgages that go into foreclosure will be 30-year fixed."

All of this is nice and fine, but how does it work in reality, in my life and in yours?

Remember, after I wrote my passive income article in November, I started looking for investment property. I found an 8-bedroom house that was rented out to students. To buy it, I'd need to borrow $540,000. If I borrowed that money using a 30-year fixed mortgage at 6 percent interest, my payments would be $3,238 per month. Add taxes and insurance, and my total payments would be $3,632. The rental income from this house is $3,600, not including maintenance and repair costs, plus possible vacancies. Using the traditional 30-year fixed mortgage, I would have negative cash flow.

On the other hand, if I borrowed $540,000 using the minimum payment option of an ARM mortgage at current investment property interest rates, my minimum monthly payment would be approximately $2,130 per month. With taxes and insurance of $404, my total payment would be $2,534. Factoring in $400 per month in maintenance, repairs, and possible vacancies, I would likely have a positive cash flow, or at the very least, break even. Then, I can sit tight for three to five years until the property appreciates significantly in value, then either sell or"better yet"refinance the property, pull out cash for investing in additional real estate, and do it all over again. All the while, I am allowing my tenants to pay my mortgage!

You Can't Afford Not to Get Started

I know that this information can be overwhelming, but I also know that if you want any kind of financial stability and freedom, you need to educate yourself about passive income. You simply cannot and should not ever sit back and expect that your job, your pension, or Social Security will take care of you.

Newer loans, such as interest-only and ARMs, were created for people just like you and me, who don't have endless streams of cash to put down on investment real estate. They allow us to get into the game using less cash, and they can be safe when used properly and when you and your mortgage broker really understand them.

FIXER-UPPERS

Is it smart to even consider a fixer-upper?

It depends. Distressed properties or fixer-uppers can be found anywhere, even in wealthier neighborhoods. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood. Many experts recommend that before you make such an investment, first find the least desirable house in the best neighborhood. Then do the math to see if what it would cost to bring up the value of that property to its full potential market value is within your budget. If you are a novice buyer, it may be wiser to look for properties that only need cosmetic fixes rather than run-down houses that need major structural repairs.

Is there a tax break for a fixer-upper house if it is considered historical?

Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government.

The tax code does not allow deductions for the demolition or significant alteration of a historic structure.

The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.

The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

For a list of participating lenders, call HUD at (202) 708-2720.

If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home, or refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility.

Are there special loans for Fixer-uppers?

If you need a home loan to buy a "fixer-upper" and remodel it, look at the U.S. Department of Housing and Urban Development's Section 203(K) loan program. The program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.

A 203(K) loan is usually done as a combination loan to purchase a "fixer-upper" property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Investors must put 15 percent down while owner-occupants are required to come up with only 3 to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements.

Two appraisals are required. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

What are building codes?

Building codes are established by local authorities to set minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.

All buildings must be issued a building permit and a Certificate of Occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.

Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.

How do I find a good contractor?

While hiring contractors recommended by friends is usually a safe route, never hire a construction professional without first checking him or her out. If your state has a licensing board for contractors, call to find out if there are any outstanding complaints against that license holder. Also, call your local Better Business Bureau to see if there are any complaints on file.

If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of worker's compensation insurance they carry and get policy and insurance company phone numbers so you can verify the information. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy.

If they pass the insurance hurdle, next check some of their references. A good contractor will be happy to provide as many as you want.

Finally, don't let yourself be rushed into making a decision no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money.

Is remodeling worth the price and time?

Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its "curb appeal" with a potential buyer down the road.

Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.

How do I look for fixer-uppers?

You can find distressed properties or fixer-uppers in most communities, even wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area.

Ascertaining whether the property you're interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost.

Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it.

The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's rehab budget.

Want 20% More for Your Home ?
Is Rehabbing the Answer ?

3508 Iron Sight Ct. Raleigh, N.C. (BEFORE)

(AFTER)
Sold in 2 œ Weeks For Full Price

Christopher Holloman sold his home and got full asking price - it closed December 15th. And his price was the highest ever paid in his neighborhood up to that time. The offer was made after only 2œ weeks - and from the very first buyer looking by way of the MLS. Q: How Did This Happen? A: Rehabbing! Christopher decided to make the rehab investment so he could sell for top dollar and make a REAL profit. He was aiming for $30,000 to $40,000 more than could be expected from doing just the ordinary pre-listing fix-ups. Chris got a $35,000 higher sale price by Rehabbing!

Homes that have not been up-dated will sell for an average of $30,000 to $50,000 less and often sit on the market month after month; some don't sell at all. If poor selections are used and needed changes altogether neglected, even homes that have been rehabbed can fail to sell for as much as six months to a year, all because an inexperienced rehabber misguided the homeowner to spend money on changes that don't make a "selling" difference. Rehabbing is not cheap, but since it more than pays for itself, it is an investment, not an expense. The rough rule-of-thumb is for every one dollar needed but not invested, the market will pay two dollars less in price. So doing the work "before" is smart marketing. You get a quicker sale and a 20% to 30% higher price. This is not the time to experiment. Nothing takes the place of an experienced specialist in the rehabbing field. We know what not to waste your money on. And we know what will make a serious marketing difference, what appeals to today's home buyers. Also, really important: we have the building contractor experts who can do the improvements needed on your home in the most economical way. Sometimes for less than your first price reduction!

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More After Pictures
3508 Iron Sight Ct. - 20 Yrs. Old, Now Better-Than-New

Gleaming Solid Oak Hardwood Floors New Light Fixtures, New Paint, Reconditioned Brick Fireplace & Hearth and Newly Stained Mantle	Rocking Chair Front Porch New Swing, Reconditioned Floor
All New Stainless Steel Kitchen Ceramic Tile Floors, Re-Stained Cabinets Featuring Brushed Steel Knobs & Drawer Pulls, Pendant Light Ranks This Kitchen High With New Buyers	Master Bath Boasts All Newly Painted Cabinets Featuring Brushed Steel Knobs and Drawer Pulls. Note Up-Dated Mirror, Light Fixture, Faucet and Matching Towel Rods
Indoor-Outdoor Area Rug Topped With Newly Painted Patio Set Brightens Up Second Tiered Deck	Our Homes Sell Faster.... and for More Money!

FORECLOSURES

Are Foreclosures a good investment?

A foreclosure property is a home that has been repossessed by the lender because the owners failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic conditions affect the number of foreclosures, too. Many people lose their homes due to job loss, credit problems or unexpected expenses.

It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court judgments are cleared or at least disclosed.

Are there different types of foreclosures?

Judicial foreclosure action is a proceeding in which a mortgage, a trustee or another lien holder on property requests a court-supervised sale of the property to cover the unpaid balance of a delinquent debt.

Non-judicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.

How do I find a foreclosed property?

In most states, a foreclosure notice must be published in the legal notices section of a local newspaper where the property is located or in the nearest city. Also, foreclosure notices are usually posted on the property itself and somewhere in the city where the sale is to take place.

When a homeowner is late on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The financial institution that has initiated foreclosure proceedings usually will set the bid price at the loan amount.

Despite these seemingly straightforward rules, buying foreclosures is not as easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition.

How does HUD affect my buying a foreclosure?

If you are strapped for cash and looking for a bargain, you may be able to buy a foreclosure property acquired by the U.S. Department of Housing and Urban Development for as little as $100 down.

With HUD foreclosures, down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from 5 to 20 percent. But when the property is FHA-insured, the down payment can go much lower.

Each offer must be accompanied by an "earnest money" deposit equal to 5 percent of the bid price, not to exceed $2,000 but not less than $500.

The U.S. Department of Veterans Affairs also offers foreclosure properties which can be purchased directly from the VA often well below market value and with a down payment amount as low as 2 percent for owner-occupants. Investors may be required to pay up to 10 percent of the purchase price as a down payment. This is because the VA guarantees home loans and often ends up owning the property if the veteran defaults.

If you are interested in purchasing a VA foreclosure, call 1-800-827-1000 to request a current listing. About 100 new properties are listed every two weeks.

You should be aware that foreclosure properties are sold "as is," meaning limited repairs have been made but no structural or mechanical warranties are implied.

You can only purchase a U.S. Department of Housing and Urban Development property through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.

Where do you find government foreclosed homes?

The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors.

You can only purchase HUD-owned properties through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.

Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market's 5 to 20 percent.

Buying a foreclosure property can be risky, especially for the novice. Usually, you buy a foreclosure property "as is," which means there is no warranty implied for the condition of the property (in other words, you can't go back to the seller for repairs). The condition of foreclosure properties is usually not known because an inspection of the interior of the house is not possible before the sale.

In addition, there may be problems with the title, though that is something you can check out before the purchase.

Buying directly at a legal foreclosure sale is risky and dangerous. It is strictly caveat emptor ("Let the buyer beware").

The process has many disadvantages. There is no financing; you need cash and lots of it. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title. The property's condition is not well known and an interior inspection of the property may not be possible before the sale.

In addition, only estate (probate) and foreclosure sales are exempt from some states, disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it.

Can I get financing on a foreclosure?

One reason there are few bidders at foreclosure sales is that it is next to impossible to get financing for such a property. You generally need to show up with cash and lots of it, or a line of credit with your bank upon which you can draw cashier's checks.

What are trustee sales?

Trustee sales are advertised in advance and require an all-cash bid. A sheriff, a constable or lawyer acting as trustee usually conducts the sale. This kind of sale, which usually attracts savvy investors, is not for the novice.

In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed.

CONDOS, APARTMENTS AND SINGLE FAMILY

What are the differences between condos and single-family homes?

Using appreciation as a measure, condominiums in some areas have been as profitable an investment as single-family homes in the past five years. And in some markets, condos appreciated even more, according to some experts.

While single-family homes have been the preferred investment by homebuyers, changing demographics are helping make condos more popular, especially among single homebuyers, empty nesters and first-time buyers in high-priced markets.

Also, the condominium community has worked hard in the last few years to overcome image problems brought on by homeowners association and developer disputes as well as all too frequent construction-defect litigation.

Should I be looking into Condos?

While condos never had the kind of appreciation experienced by single-family homes in the go-go 1980s, most ultimately have not lost value, say some experts. And with high prices in many urban markets and more single homebuyers in the market than ever before, the market for condos is strong.

As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer).

The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes.

Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact, condos have appreciated more in the past few years than when they first came on the scene in the late 1970s and early 1980s, experts say.

While there are lots of reports about homeowner's association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past.

Meanwhile, changing demographics are making condominiums more attractive investments for single homebuyers, empty nesters and first-time buyers in expensive markets.

How do homeowners Associations work?

Learn everything you can about the homeowners association before you buy into a development governed by one. The association's financial, political and legal conditions are very important to your investment and quality of life.

When run properly, homeowners associations maintain the common grounds and keep civility in the complex. If you follow the rules, the association should not intrude on your privacy or cost you too much in association dues.

Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the association's covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you can get away with violating the rules or change them later because you may find yourself in turmoil with determined neighbors firmly in control of the association board.

Find out all you can about the association's finances. Beyond reviewing the budget, talk to the association treasurer and find out if dues are expected to increase and if any special assessments are planned. Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike or special assessment later on.

Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo complex for you.

Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics. Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a good thing.

Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real estate investments, the more you know the better off you are.

Is it difficult to project rents on rentals?

If you are buying a rental income property and applying for a loan to do so, the lender will require an area rent survey by a certified appraiser. The amount a landlord can expect to receive in monthly rent largely depends on what the property has rented for in the past, the condition of the building, its location and the current housing market.

Lenders also look at other cash-flow considerations. They want to know if you have enough reserves on hand to cover predictable and unforeseen expenses, such as property insurance, taxes, regular maintenance and repairs.

VACATION HOMES

Are vacation homes a good investment?

You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits.

Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible.

Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house less than 14 days a year.

You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.