Vince’s Lessons as a Broker, Part 3: How to Do It (and What to Do)

by Tony Chavira

When Vince sold his house in Inglewood to move to Downey in 1999, he had an eye-opening experience with a real estate agent. To make the situation easier, he decided to work with one agent, who would represent both him and the eventual buyer. Vince and his wife searched for a new home while struggling to find a place for their family to live during the transition. Their agent promised both of them she would be their one stop shop: find them a temporary place, help them buy their new home, and sell their old one. But as closing on the Inglewood home approached, the agent turned on them. She started making outrageous demands on behalf of the potential buyer, claiming they were contractually obligated to make repairs despite having never mentioned a contract. Meanwhile, she hadn’t helped his family find a temporary place to live. Clearly, the buyer’s commission mattered most.

When Vince and his wife finally sat down with her and told her she had done little to nothing to help them, that she had stopped showing their home and potential buyers were few and far between, her response was, “Why don’t you pray on it?”

The advice to work with an agent worked inconsistently. Trevor, Michelle and Erick and Bhanu had great experiences with agents and brokers, while others like Reid, and Andy and Cindy did not. I started writing this series on first-time homebuyers because I had heard lots of inconsistent information about what it took to buy a home. I planned to write one or two articles about best homebuying practices, but discovered that there were two distinctively different homebuying environments in the United States, and each presents different best practices.

In the formal process, you get your mortgage pre-approval letter and go to a real estate agent who will show you some homes. You eventually find one you like, apply for the mortgage, get approved, move in, and that’s that.

Then there’s the Wild West. There, it doesn’t matter where you get the money, it’s just about buying the home from someone cheap ... sort of like getting something on craigslist. How you buy it, how you cut the deal, what you negotiate on, and how you organize the mortgage are totally up for grabs.

After conducting all the interviews, I discovered that there are two distinctive kinds of homebuyers: investors and people-who-just-want-to-buy-a-house-to-live-in. Investors generally prefer the Wild West: they get better opportunities for deals, money can come out of anywhere, price ranges are wider, there’s more to gain, and there’s a lot more hustle involved. People-who-just-want-to-buy-a-house-to-live-in prefer the formal process. They build up their credit, want a place where they can have a family, and plan to live there until they grow old, or at least older. There’s little risk, less hassle, less back-and-forth, and more straightforward rules.

But let’s say you want to buy a house. And let’s say that you read none of my articles and have learned none of the life lessons imparted by any of my brave interviewees. What do you do to make that house happen and not get screwed?

Clearly that depends on what your goal is. Investors are looking for smart property investments, which homes are not. They’re too susceptible to erratic fluctuations and too expensive to maintain, and carry too much overhead. Worst, you can’t dump one if it takes a dive.

A smart property investment is an 18- to 40-unit building or development. It’s big, but not so big that you’ll lose financial ground, easy to refill (they always tend to have 80-90% occupancy), and easy to manage. It’s large but not anonymously large, which is important for women and children who like to know their neighbors. You won’t often see one of these properties on the market, though, since they’re perfectly sized to withstand tough times. In a nutshell, they’re cash cows.

If you’re looking for a big return from buying a home, you have two options. You can make your money and wait for the market to collapse (like it’s doing now) and buy as much as you can at the low point. Or you can buy short sale properties and fix them up as best you can. This may take time, and the bank may draw out the process by trying to keep the owners in the home, but you can’t go wrong if you have the cash to spend. And right now, 13% of all homes in the United States are vacant, so finding a short sale on a cheap property won’t be impossible.

As for whether or not you should renovate a place to increase its value, Vince recommends that you do it, but only if you have the money on hand. If you have to pull out a loan for renovations, it’s just not worth it, especially if you don’t know how stable your job is.

You should know your job stability anyway. If your company is going through tough times, you’re setting yourself up for failure. So before you go out and make the biggest financial decision of your young life, make sure your paycheck will be consistent. Or if you’re renting your property out, make sure your renter’s job will be consistent. There are enough properties out there now that good tenants have a lot of options. Just make sure that your tenants are the good ones. Vince’s tenants left as soon as the market tanked, and Vince’s money left too when he ended up on the hook for all of his mortgage payments.

If you’re a person-who-just-wants-to-buy-a-house-to-live-in, your first smart move is to determine what your future will entail. If it involves children, you need a home near parks, libraries, schools and police stations, and probably want to be close to the supermarket, the post office and other amenities.

Vince and his family love the city of Downey: local industry thrives, restaurants are open day and night, and it has a good public transportation and good schools. “Always a city on the rise,” he told me. Good indicators include steady population increase, developing economic centers, and a variety of people with a good number like you. Oh, and go into your home purchase with 30% down (not 20%), or else you won’t have enough equity to justify making those payments for 30 long years of your life.

When I asked Vince the best kind of property to buy, as a deliberately vague final question, his answer’s simplicity was notable: “One that’s paid off.” And he’s right. If you love your job, I’m happy for you. But most people work to pay the bills, and the mortgage is their largest. It’s the reason they work for the man, it’s the reason they come home late, it’s the reason they don’t spend time with their kids. They just need to make sure there’s a roof over their heads, and that means spending 30+ years as wage slaves.

Last but not least, pay your property taxes on time. In fact, include them in your mortgage payments. After five years of missing your property taxes (which you can legally do), the county will sell your home for the price of the taxes owed. And you will surely be outbid by a bank looking to buy your home for twice the amount of your taxes with their filthy wads of bailout bucks.

So that’s it. Now go out there and make me proud.

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