I see these pretty regularly, but this one was surprising because of the price.

Traditionally, these deals have involved $1m homes and leases on cars like a Mercedes or BMW. This is a house priced at $260k, and the car is an outright purchase. The house is either brand new, or pretty recently built.

They are paying a premium to the buyer’s agent as well.

Why am I mentioning this? I bet your first thought was that I wanted to help someone buy the house… but that wouldn’t be right. I want to warn buyers about these types of deals. They can be great, but there are some pitfalls.

The ad says that the house is priced “below Market Value.” Well… market value hasn’t been determined yet. Market value is defined as the price at which a buyer and seller can agree to the purchase. It may be below appraised value, but that is the opinion of one appraiser.

So, what is the danger, Lane? The danger is that if the new owner needed to sell the property in the near future, it is likely that there would not have been enough appreciation to cover the cost of the car. That means that the buyers could find themselves upside down in the home for a few years. It is likely that the home would have to appreciate for 5 years or more to allow the new owner to sell without involving their checkbook.

Perhaps it is a great marketing move… but it could be a move that doesn’t provide a positive financial impact on the buyer in the future.

A real estate deal is made up of a lot of components, and there are a lot of opportunities for exposing both buyers and sellers to legal or financial pitfalls.

photo credit: Coed

Car is NOT the included vehicle.

This is not meant for everyone. But, for the right people, this should be a must read. Those people are:

• First time buyers
• People that aren’t selling a property to buy another
• Those living in a high demand area and looking to move to a lower demand area
• Long term investors

If you are in one of these groups, I would recommend looking around and thinking about the future. We know that the real estate market downturn will go away. We know that values will begin to rise. What we don’t know is exactly when… or if there is much more to fall.

Honestly, looking for the bottom of the market is somewhat of a fruitless search. At its base, “the market” is made of individual sales. And EVERY individual sale has to find its own bottom… and that bottom is only found when a buyer gets an offer accepted. As we have seen in the recent past, that property might change hands and make a new bottom, but I also think it would be fair to say that there isn’t a lot of fat built into the current pricing.

Here is an example:

I know of several similar properties that the owner is thinking of selling*. These are 4plex units. They currently bring in roughly $3500/month in rent, and have longer term renters. The seller is thinking of a price in the range of $450,000/4plex. With a 10% down payment, a buyer could be looking at a P&I of around $2600/month. Even with taxes and insurance, these would be providing positive cash flow from day one. At least a couple hundred dollars a month… and then when we start adding in depreciation…

Of course, the real magic is when we start looking at appreciation. Over the course of 30 years of ownership, one of these properties would provide over $500,000 in income, as well as appreciate to over $1,000,000 in value… while others pay the mortgage. So, one of these properties could net the owner $1.5M.

In this case, the sellers are retiring. Comfortably. And they have moved out of the area.

But, there are a lot of instances where there are great deals on properties. And, one of the things I have learned from investing is that the noise of the market is well behind the curve. When people are talking about the upside… the upside is slowing. When people are looking at the downside… the downside is slowing.

The more I see on the news and the more I hear about how bad the real estate market looks, the more I know that the deals are there and the turn is coming.

Need a little more proof? Look back at the top of the housing bubble. Or the top of the tech bubble. Or the bottom of the last real estate meltdown.

So, if you are thinking of being a buyer, and you have good credit, this might be a good time to do it. I would counsel that you get together with a local real estate agent (like me) and also talk with a good mortgage broker (I have a couple that I can recommend). Look at the options. It might not be the time for YOU… or it might.

*I do not have these properties listed and would likely be serving as a Buyer’s Agent on the purchase of one of these properties.