You’ve found a way to finally achieve the pipe dream you thought was reserved for a parallel-universe version of yourself: An essay contest put on by a property owner means a 200-word essay and a $200 entry fee are all that stands between you and owning a charming, historical New England bed-and-breakfast. You can see yourself serving scones to kind out-of-towners already.
But hold on — is a simple contest to win property, with a business occasionally attached, too good to be true?
Whether it’s HGTV’s Dream Home sweepstakes or an individual homeowner looking to offload a vacation home on a deserving, though not necessarily financially endowed, recipient aren’t new, these contests appear to be gaining popularity as they get shared on social media and discussed online.
If you’re a homeowner already or have been working toward becoming one for a while, you’re well-versed in the cautionary tales of taking on a property you can’t afford and the possibilities that a free house can backfire when it comes time to pay thousands — and sometimes tens and hundreds of thousands — in property taxes.
[See: The 25 Most Desirable Places to Live in the U.S. in 2017.]
At the same time, it is free property. Even if you ultimately wouldn’t succeed as B&B host, a property with a dilapidated roof or questionable plumbing system still increases your wealth.
“Any real property you get [for free or a low price], I mean it’s a total win for you,” says Marc Simon, an attorney specializing in real estate and managing member of Simon Law LLC in Las Vegas.
But before you throw all your cards (and time) into winning a house through a sweepstakes or essay contest, carefully consider how the contests work, what you’d be taking on and how to successfully navigate the process should you win a property.
How the Contests Work
Most of the essay-based competitions require an entry fee, typically between $100 and $300, and ask for an essay of 250 words or less. With a deadline, the contest organizers will establish a minimum number of entries needed for the contest to declare a winner.
A minimum number of entries ensures the owners will be making fair market value for the house, or close to it, by holding a contest. Simply, rather than putting it on the market and vying for buyers, they’re able to open ownership to those who wouldn’t otherwise be looking for — or be able to afford — the property.
While online essay-writing contests to win real estate appear to be increasing in popularity — or at least they’re gaining more media attention — the number of contests that receive enough entries to declare a winner seem to be few and far between.
Despite being featured in The New York Times in February, the Win Lakefront Dream Home contest ended in April without receiving the 5,500 applicants needed to complete the contest. That means no one won the prize: a lakefront house in the Catskill Mountains.
Even with the sweepstakes that run successfully, rarely does it seem that the winner lives on the property. Last year, media and technology company Vocativ reported that most winners of the HGTV Dream Home sweepstakes — which requires nothing beyond simple entry of information — since 2012 sold the property within a couple months of winning, and two of the 19 winners opted for the cash alternative offered in HGTV sweepstakes over the property at all.
[See: 7 Things First-Time Homebuyers Wish They’d Known.]
A Different Type of Competition
One contest platform that does appear to be operating as successfully as planned is Write A House, a program in Detroit operated by a nonprofit organization of the same name, aimed at renovating vacant homes and awarding writers with residency — and then eventual ownership of the properties.
The program also serves as a stepping stone in transitioning the writers to homeowners once their two-year residency ends. During those two years before the writer takes ownership of the house, he or she doesn’t pay rent, but instead pays the property tax and insurance to Write A House to help prepare for the costs associated with homeownership.
“All of these people are pretty much first-time homeowners. We didn’t want to drop this weight: ‘Here you go, take care of a home,'” says Sarah Cox, co-founder of Write A House.
Of course, the main motivation behind Write A House isn’t passing on real estate, but rather the goal is helping artists live and create in a city with a lot of vacant homes, along with providing construction and maintenance-related training to other city residents seeking employment. Cox says Write A House is also exploring other possible program platforms that provide low-rent housing for artists, but don’t necessarily end in homeownership.
“Our goal is to fill vacant houses with cool, creative people and have them stay long term, whether homeownership is the best mechanism for that, or some sort of long-term subsidized residency works best,” Cox says.
Before You Accept Any Prize
Receiving real estate for free (or for the low cost of an entry fee) isn’t necessarily a bad idea. In fact, it may be a wonderful way for a person to own property he or she otherwise wouldn’t be able to afford. But as with any property you would purchase, you should conduct due diligence before signing the deed. Here are four things to check out before accepting real estate for free.
Preliminary title search. Simon says a preliminary title search can reveal any liens on the property or previous litigation that could cause a headache for you down the line — not the mention the financial burden you may be inheriting.
“Make sure that [the property’s] not covered in tax liens and association liens, or if the former owner had IRS liens on it,” Simon says. “There’s no point in getting a property that’s encumbered with all sorts of things that you’d never know what they are.”
Think before you waive disclosures. Even with property given to you as a gift, in the case of residential real estate, the giver would be required to disclose any known issues, Simon says. And remember that disclosure law varies from state to state.
Since it’s a contest, you may be asked to waive disclosures in order to receive the property, but if deferred maintenance isn’t something you’d be able to afford, think twice before accepting the property.
Check the property’s zoning. If you’re in the running for a property that includes a business — like a bed-and-breakfast — be sure to verify that the property’s zoning would allow you to operate a business out of the home. If the property isn’t currently zoned for the business you hope to operate, inquire with the municipality or county about rezoning before moving ahead.
[Read: Before You Buy: Conducting Due Diligence on a Property.]
Know the property taxes. The amount you pay in property taxes for something you didn’t pay market value for may be a rude awakening.
Connecticut, for example, has a property tax rate of 1.97 percent, according to WalletHub. If you win a house assessed at $800,000, you’ll owe $15,760 per year — that’s more than $1,300 per month — a sky-high payment for someone who doesn’t make the same salary as a person who could otherwise afford to purchase an $800,000 home.
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What You Should Consider When You Want to Win a House originally appeared on usnews.com
