Monday, October 4, 2004

It's 'no money down'? Home-buyer, beware



By Steve Rhode
Gannett News Service

Question: Just wanted to know about all those infomercials about buying houses or property with no money down and no credit. Can this work? Is it legal?

Answer: Yes, it is possible to purchase real estate for little or no money down. However, that does not mean that it is a good idea for the novice investor to do so.

There are many factors that are part of a successful real estate deal. Only a small portion of a successful real estate investment is financing. Other critical factors are location, condition, location, market direction, location, and your willingness to take a loss if you are wrong. The error that I see most new rental property investors make is that they have no idea what it takes to be a landlord. It is not fun.

Let me share two hard lessons from my personal experience: First, be sure that you have a good cash reserve before you attempt to purchase property. The purchase is just the beginning of your money flow. Once the purchase is completed, you will have to keep putting cash into the property. It may be nickel-and-dime stuff, but it all adds up. Second, never buy a property hoping to flip it quick. Be prepared to hold onto it forever. You can never guarantee when it will sell. Make sure you've got the cash to keep it once you buy it. If you're looking to flip property, study your options carefully.

Q: If I cancel a credit card, will it show on my credit report that I canceled it, or will it just state something like "Account Cancelled" which could mean they canceled me? If it clearly shows that I was the one who canceled it, but I have a remaining balance, will a potential creditor (including credit card companies) look kindly on the fact that I canceled this account?

A: When you cancel a credit card, write a letter requesting that the card company close your account and that your credit report state "closed by consumer." By law, the credit-card issuer must honor your request. They will close your account, cancel your privileges and continue to send your monthly statements until you pay off your balance. But beware, today if you close your account, you could lose any reward points you have earned but not used and some creditors will raise your interest rate until the outstanding balance is paid in full. Creditors will view the fact that you closed your account favorably, but you need to continue paying on that debt, since the amount of debt you carry can count against you even if you've closed the account.

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Do you have a question about credit or debt? Send it to: Myvesta.org Questions, P.O. Box 8587, Gaithersburg, Md. 20898-8587 or by e-mail to: questions@myvesta.org. Be sure to include your phone number.




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