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And savvy investors will make money in this down housing market. "You can buy foreclosures for as cheap as 30% or 40% below market, but most foreclosures sell for 5% below market," said John T. Reed, editor of Real Estate Investor's Monthly.
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership of the property. Because the market is flooded with houses, banks have extended loan periods and negotiated terms for payment. That notwithstanding, there are more homes in foreclosure today than since the Great Depression. There are great opportunities here for small investors with cash to pick up homes that are devalued either as an investment or for their private residence.
There is a lot you need to know to be a smart buyer of a foreclosed property. What you do not want is to be the next person who defaults on this property nor do you want to buy a money pit.
Finding homes in foreclosure. Many banks maintain online lists of foreclosed properties. Here are a few national lenders who maintain web sites of bank-owned properties: Countrywide, Bank of America, and Chase Mortgage. There are also listing of foreclosures on several government sites including: HUD - Housing Urban Development foreclosure homes, Fannie Mae foreclosure homes, and Department of the Treasury - homes seized by the Internal Revenue Service. Be aware that some government agencies require you to retain the services of a real estate broker to make an offer to purchase.
Two websites that specifically work in the area of finding and advertising homes in foreclosure are Foreclosure and RealtyTrac. Both of these websites have a wealth of information for potential foreclosed home buyers.
If all these information sources about available homes in foreclosure is too overwhelming, you can work with a real estate agency in your area that specializes in locally available foreclosed homes.
Tips on buying homes in foreclosure.
- Location, location, location. A marginal home in an excellent location may be worth the extra effort to polish and repair.
- Check the property personally. People who are facing foreclosure on their homes have probably been in financial trouble for awhile. That means that needed repairs and maintenance may not have been done. If the house is vacant and has been on the market for a period of time, there may also have been vandalism or other damage from neglect.
- Banks are sometimes reluctant to lend money on properties in foreclosure. You need to obtain a valuation of the property from an accredited agent; the bank may also request a further valuation.
- If you are a novice buyer for a home in foreclosure, buying from a bank will give you a bit of protection. A foreclosure owned by the bank will have a clear title, no delinquent taxes, no liens, and no tenants.
- Check the property’s history through county tax records.
- Do a comparable sales assessment of other homes with ¼ to ½ mile of the home in foreclosure.
- If you plan on finding, evaluating, negotiating, and getting financing yourself, you cannot be too careful. Buying a home in foreclosure can be fraught with potential problems without professional advice and help – Caveat emptor.
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View more information and all guides by Jason Kay
