Sometimes the most lucrative real estate investments to be found come in the form of foreclosure homes. Homeowners who want to avoid the financial devastation that comes with a foreclosure in terms of the hit to their credit will usually be open to selling their home through a short sell. Homes that have already gone through the foreclosure process and are just sitting empty while the bank tries to unload it can give you super low prices.
Banks do not like to keep foreclosures on their books for very long and that works out in your favor as a new real estate investor. Here are three quick tips that will help you get through the process of purchasing foreclosure homes without losing money or driving yourself completely insane:
Tip #1: Get to know the neighborhood prior to purchasing.
Not only do you have to know as much as possible about the property that you are going to purchase, you should know a lot about the neighborhood in which it is located. Homes in bad neighborhoods are a lot harder to resell no matter how nice you fix them up and homes that have low property values in the neighborhood in general may not be the best purchases either.
Besides just looking at the current state of home values in the area, look back several years to determine how high values were in the past. Chances are you can purchase while the values are lower and wait for it to rebound which gives you more of a profit upon selling.
Tip #2: Secure your financing before you find the home you want to purchase.
One very good way to lose a great foreclosure deal to another investor is to find yourself unable to match their super quick closing process. Investors that have lenders willing to extend them lines of credit and process a sale extremely fast will get more foreclosure deals than others because banks and troubled homeowners have a need to close the deal as quickly as possible.
To remain competitive you need to get pre-approved for financing and have connections with professionals who can push the sale through very quickly.
Tip #3: Be realistic about what it is going to take to fix up the home.
New investors run into a lot of trouble when it comes to estimating what it will take to get the foreclosure property fixed up and ready to resell or rent out. If you aren’t sure what it will cost to get the necessary repairs completed consult with professionals who can give you quotes. If you are wrong about this figure you could get far less profit in the end than you expected or you could even take a loss.
When you secure your financing for a foreclosure investment you should consider the expense of fixing it up as well. When your goal is to resell you will need to make all of these repairs out of your own pocket before you can try to sell and make your money back.
Don’t make the assumption that all foreclosure homes are a great investment. The longer the property has been sitting empty the more work and money it is going to take to fix it back up. If you end up investing all that money and then discover it will take a long time to sell the property you could be quite disappointed in the results of the investment.
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