Tips for Flipping Foreclosed Homes

Tips for Flipping Foreclosed Homes

Flipping real estate is a major investment that has become popular not only due to its profit potential but for the enjoyment of turning an ugly duckling into a swan. However, there are rules that must be followed to ensure a successful flip.

What You Need to Know

Investors in foreclosed properties must educate themselves about financing and have a comprehensive knowledge of the local housing market they are buying into. They need to research the neighborhood surrounding the foreclosure property to view what types of homes are selling the fastest. Types of properties to pay attention to are multifamily dwellings like duplexes, apartment and condominium complexes and single residences.

The investor must learn about financing investment properties and know that investing in flipping homes is a bit different from traditional real estate investments. The financial plan must include the best way to finance the purchase with the added condition of maximizing profit when the property is ready for sale. Possible financing options are remortgaging an existing asset or obtaining a home equity line of credit.

Financing anything always requires a good credit score to obtain the best terms. A low credit score can be improved in many ways. It’s a good idea to have the highest possible score before searching out financial options.

Building a Team

It may be wise to consider an investment partner to help get through the challenges that will most certainly arise with flipping foreclosed properties. Ideally, an experienced real estate investor and foreclosure flipper would be the best collaborator.

A real estate investment network is not easy to build but it may be the most important asset a successful foreclosed home flipper can have. The network should include:

  • Credit advisor or mortgage broker
  • Real estate attorney
  • Accountant
  • Trusted and experienced general contractor
  • Property appraiser
  • Insurance agent
  • Title company

This may seem like an expensive group of advisors, but bear in mind, they are on-call to be sought only when their services are required. They need to be trusted acquaintances that are familiar enough with your business that they will offer assistance immediately when called upon. Building and maintaining relationships with the network is an essential part of the flipper’s success.

 

All investments involve risk, but foreclosed home flipping is more fun than most because unlike stocks and bonds, it is a hands-on adventure where investors can clearly see the result of their efforts.

Are Foreclosed Homes Good Investments?

Are Foreclosed Homes Good Investments?

When it comes to real estate, a foreclosure may seem like a good deal. However, those amateur investors or home flippers might not realize what it takes to make a foreclosed home into an investment that pays off. Furthermore, even homebuyers should make sure to be aware of what a foreclosure requires to make a good home.

Purchasing a foreclosed home is similar to buying a used car from an auction. Consumers can save a lot of money if they have the time to search out these deals. A little bit of luck doesn’t hurt.

However, the people who do the best with these types of sales are those who are familiar with the product and make the call whether the lower price is a deal. Just because a foreclosed home is worth less than the property assessment doesn’t mean the estimate is correct. The professionals know this, but new investors may not.

This experience and knowledge help buyers make wiser decisions and mitigate risk. Instead of just looking at the price differential, they consider factors such as location. Is the home in a neighborhood where it’s likely to sell? Does it have unique features that help it stand apart from other properties? What work will be necessary to sell the foreclosure at a profit? Even if homeowners have no plans to sell soon, they need to consider the future resale value of their purchase.

Furthermore, investors must have a strategy that includes property acquisition as well as holding it until it sells. If an investor doesn’t consider the overall real estate market, which includes job and population growth, this property could be on their hands for quite some time. Investors may even lose money due to property taxes and maintenance costs.

Finally, the smartest investors know that foreclosures may not be the way to get the most bang for their buck. Some investors spend time listings of future auctions and content owners or lenders before the auction occurs. While this might not lead to a better price, it can ensure that an investor can close by eliminating the competition and eliminate the need to have cash for an auction. That lengthy closing process can also interfere with a homeowner’s plan to move.