If you’re looking for a great deal in a tough real estate market, buying a foreclosed home may be the best option. While the main benefit of purchasing a foreclosure property is the price, the process is more complex than with a traditional real estate listing. It’s important to know what to look for and how to buy a foreclosed home if you want to get the best deal. Here are five tips to keep in mind when buying a foreclosed home.
It is often difficult to access these properties before they become available for sale.
Many people think there must be a secret way to get access to foreclosed properties before they go on the market, but the reality is that most of these properties are owned by large financial institutions that have a lot of other assets. These companies tend to outsource the entire foreclosure process to a management company, which includes hiring a local Realtor to evaluate the property before it is listed. Local banks may be able to provide information on who’s handling the foreclosed property, but this is the exception rather than the rule. So this means it can be difficult to access these properties before they become available to the public.
Make sure that you are actually getting a good deal.
When it comes to buying a foreclosure, it’s important to ensure that you’re actually getting a good deal. Contrary to popular belief, foreclosures are not always the best buy. In fact, most foreclosures are listed on the open market, meaning that the visibility and demand for them are the same as you would expect with other properties. The price of foreclosures is set at the highest possible value in order to meet the needs of the bank and the listing agent. Therefore, it’s important to remember that foreclosures are not being offered at discounted prices.
Conduct a full property inspection, including all utilities.
Before you purchase a foreclosure property, you should get a full inspection done with the utilities turned on. Make sure the house has been winterized, and you can access the furnace if necessary. Be aware that you may need to purchase special access to get the utilities going, which can be costly and time-consuming.
Prepare for the worst if purchasing a home as-is.
If you’re buying a foreclosure in “as-is” condition, you should prepare for the worst. Although no inspection is required, it’s a good idea to have a contractor evaluate the home and estimate the cost of any repairs. An inspection can identify major issues that the bank isn’t aware of, so it’s worth considering. This will help you decide whether you want to proceed with the purchase or walk away from the deal. To make sure you have room to cover repairs and other costs, look for a foreclosure home within the lower end of your budget.
Get a preapproval letter.
If you’re thinking about making an offer on a foreclosure, it’s important to have a mortgage preapproval letter in hand. This letter will outline information about the amount you are able to borrow based on your credit score and income. With foreclosures, the best deals often go quickly, and buyers need to have their financing worked out beforehand. Real estate investors who pay cash are usually the ones to take advantage of these deals.
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
- 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.
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.