Why Buying a Foreclosed House My Be Your Best Bet As a Home Buyer

The housing market is cyclical and it currently is on a gradual rebound from the real estate collapse of 2008. The number of foreclosed properties is fewer than a few years ago, but there still are opportunities to buy a foreclosure at a respectable price.

Don’t know what you’re doing, don’t buy

Buying a foreclosed property is not for those who haven’t studied the foreclosure process as fully as possible before shopping for a foreclosure (aka real estate owned, REO, bank-owned). Study available online information, take community college courses, and attend seminars on investing in foreclosures.

Line up your financing ducks

The next step toward purchasing a foreclosure is to develop a detailed budget. Determine the absolute maximum you are willing to spend, including mortgage, property taxes, and insurance. Include some funding for potential repairs.

Then research REOs in your real estate market of interest.

Many foreclosed homes are in need of at least some rehabilitation. How much are you willing to spend on repairs? Are you planning to do the sweat equity or will you need to hire a contractor and crew to do the work?

Now look at your budget and list what you can afford to put into a down payment and earnest money. Will you have to take out a home loan?

Having the financing lined up before you place your bid on a foreclosure indicates to the selling financial institution that you are a serious buyer. Be aware that most REOs require this information along with your offer.

Be prepared to honor your budget and if the deal doesn’t come in under your limit, be prepared to walk away.

Buy smart

Some REOs are priced over market value. Know what like properties are selling for in the area. Several online real estate organizations list “comps” for the property in which you are interested as well as similar properties.

The REO bank typically doesn’t offer disclosure on a foreclosed property. Some homes are in terrible, even uninhabitable, condition. DO NOT consider, much less place a bid on, a foreclosure without first having a thorough property inspection completed by a licensed inspector. And be very cautious of any property that is listed significantly below market value. It may be hiding some serious issues.

Don’t go it alone: work with a real estate agent who has plenty of experience with foreclosures.

The good deal

A good deal in an REO property is one that needs little if any restoration. Or, it could be the rehab property that falls well within your budget and financing.

A stronger deal is the one for which you can pay cash. Be prepared to act quickly. Bidding wars on a desirable property can be common. Don’t lowball your offer. Make it clean, in cash (if possible), with few or no contingencies, and a quick close.

The best bet on a foreclosed property is the one for which you prepared – even before you began your search.

The Five Laws of Buying Foreclosure Homes

1. Above all else, do your research. Buying a foreclosure can get you some great deals, but not all foreclosure properties guarantee savings. You have to be willing to search out the properties with the best chance for potential savings by fully examining them. Be sure to call auction or sales trustees and get all the information you can about the home before you make any decisions. Often times there may be certain things wrong with the home that a listing will not show.

2. Before you decide to pursue a foreclosure you see listed, make sure it’s being sold through a method that suits your needs and abilities. There are a lot of different kinds of foreclosures out there, from bank owned homes to pre-foreclosure properties, and choosing the right method of purchase is often just as important as choosing the right property. Some methods offer advantages that others don’t, and depending on your personal situation, others may present disadvantages. For example, pre-foreclosure homes, though they offer great deals, usually require more work. There is often a lot of cat-and-mouse phone calling involved, a great deal of bargaining, and also plenty of face-to-face meeting time to work out and close deals. If this sort of commitment is impossible for you, you’d probably be wise to consider a different type of foreclosure. You want to make sure you maximize your chances of getting the best deal possible, and putting in only half the effort required, whether you’re buying pre-foreclosures of government homes, won’t get you the kind of savings you want.

3. Perform a title search. Often times neither listings nor trustees can tell you the whole story. Sometimes foreclosed homes come with additional liens held against them by tax collectors or utilities companies. A full title search will reveal if any such liens exist. Either consult a titling agency locally or find one online. It only requires a simple phone call, but the results could save you thousands of dollars.

4. Get an independent appraisal. Most listings come with appraisal values, or if not, they are usually provided by the trustee of the sale or the local Sheriff’s office, but get one of your own just to make sure. Hire an unaffiliated, independent appraiser to inspect the house and give you an idea of its real market value, just to be sure.

5. If you have doubts, inspect the home yourself. There’s really no better way to understand what you’re buying than to actually see it. This may seem obvious, but you’d be surprised at how many people try to buy foreclosure homes based on listings alone. Inspecting a home foreclosure can give you an idea of its true condition, as well as allow you to make estimates about any repairs that will need to be done, or any maintenance you’ll need to take care of before it’s habitable. These costs all factor into your overhead when you buy them home, so be sure to calculate them exactly. If you feel the need, arrange to have a contractor join you and provide an estimate on any repairs.

The more you know about a foreclosure, the better you can calculate how much its true value is after factoring in costs and approximate market values. Remember, there is a lot out there these days, so don’t be afraid to search out the best potential values. Follow these steps to make sure you’re making a decision to buy based on the best available information, and you’ll greatly increase your chances of making a smart investment.

Exit Strategies When Buying a Pre Foreclosure Part I

It seems like it’s not important knowing your exit strategy (what you’re going to do with your pre foreclosure house after you get your offer accepted) when you first sit down to share your pre foreclosure information to the seller and before they even sign the purchase contract. But that’s not so.

Important Pre Foreclosure information after the acceptance

What you’re going to do with that pre foreclosure real estate is as important now as it will be when you do get the offer accepted by the bank.

– If you buy the house, where will you get the money?

– If you borrow the money, how much cheaper do I have to get the house to pay the interest back?

– Are you going to lease/rent or sell the property after the rehab?

– Are you going to do the repairs?

– If you don’t want to do the repairs, who will?

– Do you have a list of people who would be interested in buying the house if you’re not?

– Where would you find people who would buy the house if you don’t?

All these are important questions and you need to be thinking about them the whole time you work on the pre foreclosure lead. Once the offer is accepted, you usually have 30 days to close the deal. So time is of the essence.

If you have most of these questions answered and the pieces in place, it’s a lot easier.

We’ll take them one at a time.

1. Yes, you’re going to buy the pre foreclosure home and do the repairs yourself. And you don’t have any money, but you do have experience in doing rehab.

Buying pre foreclosure homes is a great way to build your portfolio of properties and build your net worth. You could get the money from a private lender, a hard money lender or a mortgage company.

Using a Private Lender when Buying a Pre Foreclosure Short Sale

A private lender could be someone in your family or circle of friends who know you’ve done some rehab, are interested in increasing their own income and believes in you. They may loan you the money for 8% because they are currently only getting 4.5% in a money market account. Great Deal!

You’ll just show them their money will be safe via a first mortgage on the property and you are buying it less that 70% of the after repaired value (ARV) or after it’s fixed up value and fair market value for the neighborhood.

They can lend you the cash outright or from their self-directed IRA (more on that later) where the money becomes non-taxable.

Using a hard money Lender when buying a pre foreclosure

A hard money lender charges a higher interest rate and usually points upfront. (Each point is 1% (percent) of the amount of the loan). They may or may not look at your credit, but usually don’t want this to be your first deal. They want you to have experience in doing rehabs and buying property, making them feel more secure when they don’t know you. They normally don’t ask for a credit report. They are lending because there is equity in the property and they will foreclosure on the property if you don’t make your payments.

Another way to build confidence with your lender is by giving even more pre foreclosure information. Sign a deed up front with your private lender giving the property rights back to your lender if you do default. The deed can be kept I an attorney or Title Company’s escrow account it its needed.

Giving your lender options demonstrates you want to ensure his investment is safe is a great way to keep them wanting to lend you more money!

Buying Pre-foreclosure – The Flexible Foreclosure Buying

I’m sure you know what pre-foreclosure is. But do you know buying a pre-foreclosure can actually save you up to 40% of the market value of the pre-foreclosure house? Or you are actually already thinking to buy a pre-foreclosure? Either way, you will need info to know more about pre-foreclosure and further decide your strategy to buy pre-foreclosure.

For your info, pre-foreclosure happens when home owner has missed at least one payment of the loan. The lender will then issue a Notice of Default which is a public record asking the home owner to respond to the un-paid payment/loan. This is the first legal stage of a home being foreclosed. Home owners have to respond fast to show their motivation to solve the problem. Foreclosure home owners will be very motivated to look for home buyers to buy their house during this very period.

There are always advantages and disadvantages of buying pre-foreclosure. One has to get the balance point within the advantages and disadvantages. Buying pre-foreclosure could be very prosperous in return but in another hand, it might be a nightmare.

Talking on its advantages, the sale agreements of buying pre-foreclosure could be flexible and adjustable. For the agreement only involves 2 parties – buyers (us) and the home owner. Thus, as long as the pre-foreclosure homeowner agrees, the agreement is always negotiable. Secondly, buying pre-foreclosure could save you up to 40% of market value of the foreclosure home. It means if a foreclosure home’s market value is 250,000USD, you could save up to 100,000USD. Sure your neighbors will envy you for you owning the same house with them but with the different price they are paying.

Thirdly, buying pre-foreclosure straight from homeowner as compared to buying foreclosure home through auction or REO (Real Estate Owned) allows you to have adequate time to research on the conditions of the foreclosure real estate As stated above, the agreement involves only you and the homeowner, you can always have a look on the title and other details of the foreclosure home as long as the homeowner gives a green light, can’t you? For most of the cases, buying pre-foreclosure needs lesser down payment and this make the fourth advantage of buying pre-foreclosure. As long you got your lender, everything should be going smooth.

Of cause, buying pre-foreclosure have not only these 4 advantages, but they are the major one. Having so many advantages in buying pre-foreclosure, does it mean buying pre-foreclosure is easy? I doubt it. Great bargains always need efforts and good things don’t easily have you unless, you planned your strategy properly.

Smart Hints to Successful Buying of Bank Owned Foreclosures

Bank owned foreclosures refer to those that have reverted to the bank’s ownership after a public sale. These properties can range from single units to multi-family units, condominiums, apartments, townhouses, duplexes and other types of structures. Once these properties become REOs or bank owned, they will be listed as for sale usually through listings provider or real estate brokers. Although you can choose from a wide selection of properties from a foreclosures list, it is still important to take note of the following guides to ensure that your investment is adequately protected and remains an asset rather than a liability.

Always Inspect The Property

Inspection of the property is very important. The photographs showing a property’s facade or any of its angles will not compensate for a thorough, personal inspection. Photos will not show the leaks, broken tiles, smashed windows, molds, and other repairs that are needed to be done on the property. A licensed home inspector can help you assess the damage and state of the property as well as give you a written estimate of the repairs that should be done on the property.

An ocular inspection will not only provide you a firsthand knowledge of the current state of bank owned foreclosures but give you a glimpse of the type of neighborhood surrounding them as well. You may also ask a few questions from the people in the neighborhood about their personal experiences in living in the area and other questions which would give you a clearer picture of what to expect. The information that you will gather from a house visit should help you in formulating your decisions later.

Research The Title

Once you have found a property that you are interested in, do a title search. You may want to search the public records to see if there are any outstanding debts, liens or judgment on the property. Any annotation should give you an idea that the property may still have to satisfy a money debt. You do not want to buy a property for which you would have to pay twice the amount as you would have paid for one with a clean, good title. If the property has any outstanding tax or property liens, you may have to pay for them before you can have the title.

Negotiate With The Bank

Although banks necessarily want as much amount as they can gather from a property to recover any of their losses, they can still be open for negotiations especially if the subject property is one which has been on the market for too long. Normally, banks are flexible when it comes to bank owned foreclosures that are in need of major repairs. If you are one who can manage a fixer upper property and a remodeling project either for resale or rental, then negotiating with the bank can give you a favorable outcome.