Want to save money by finding foreclosed homes for sale? Investing in this type of real estate can be most rewarding when you find a house that cleans up well for far less than its market value. Foreclosed homes are often a great path to building your real estate business and making a rewarding profit.
If you are new to investing in these homes, these steps will help you learn the ropes of how to find the right properties.
- Know what you are getting into. A bank will foreclose on a home at such a time when the homeowner is no longer paying the mortgage. This can come about due to illness, financial hardship, or other such issues. Therefore many of these homes are not in perfect condition. There are some that need small repairs, paint, and cleaning and others that are in need of a total overhaul. Therefore it is good to view pictures of the home and research the neighborhood prior to making the purchase.
- Buying bank-owned/REO properties. Another reason to do your homework is to determine the type of foreclosure you are dealing with. The most common is a bank owned property. This happens when the bank repossesses a house and then sells it to recover the debt. The sale normally happens at an auction. These sales are held at the courthouse and the sale goes to the highest bidder. If the home fails to sell at auction, it becomes a real estate owned or REO property, which the bank will try to sell through a real estate broker.
- HUD foreclosures. Another type of foreclosure is on a HUD home. This type of home comes up for sale when a homeowner defaults on a mortgage that is backed by the Federal Housing Administration or FHA. When a home that is guaranteed by this agency goes into foreclosure it becomes the property of the U.S. Government. The government pays off the remainder of the mortgage and sells the property to the public, though only through authorized HUD brokers.
- Look through public records of default. They will have free foreclosure listings. These records must be filed when a lender decides to repossess a home, and they will give you the first notice of a profitable property. You can also subscribe to websites and mailing lists that will do this work for you; however, by doing it yourself, you may get a leg up on the other investors in your area. By visiting Zanatec, you can find a listing (including address and phone number) of where to obtain public records of default in your state. You may also be able to find foreclosure auctions and other totally free listings.
- Look for liens or other claims on the property. It is essential once you have found a home that you like, especially if you plan to make an offer to the owner, that you check for a lien on the home. A lien is placed on a deed to a property when the homeowner owes a substantial amount of money. Liens and other claims on a property can make the price go way up from what you would have paid had the title been clean. It is best to stay away from any foreclosure properties that have these negative items connected to them.
- Decide what money you can make from the property. This can be accomplished by looking at other comparable homes within the neighborhood. What the home initially costs, what it will cost to fix, what it will cost to sell, and what profit you can receive from the property should all be major factors when considering whether or not to make a particular investment.
- Decide whether you want to propose a deal directly to the homeowner. If the title has no liens and the owner is still eligible to sell the home, you may be able to get a lower price by trying to purchase it before it is returned to the bank. Many homeowners in this situation are eager to do whatever they can to avoid losing their investment, including selling the property at well below market value.
- Know when the property is transferred back to the bank. This step can help you get your foot in the door and make a great deal on the property if you have decided to buy from the bank instead of making an offer to the owner. The idea is to talk with the lender or loan officer before the bank puts the property back on the market. Start by placing a lower-than-expected offer on the table, slowly increasing your price if needed. If you can negotiate a deal this way, it will usually be at a much lower rate than if you would have had to compete with other buyers after the property hits the market or auction. This is especially true for properties that are in good shape. The key to this is to form good relationships with lenders and loan officers before you try to buy.
- Get your own “house” in order. Before you buy a single home there are some things you should do. First and foremost, get a copy of your credit report. Good credit will allow you to get the best possible interest rate and monthly payment. Having bad credit will do the opposite, turning this into a losing deal. Another item that you should take care of is getting pre-qualified for a home loan. Find a lender that will loan you the money. This way you know how much you can spend on the home and still have some left over for repairs.
- Go to foreclosure auctions. If you are unable to purchase the property by making a deal with the owner or bank, then you will need to pursue the property at auction. During this stage, it is important to remember the maximum you can spend while still making a good profit. Do not overbid just for the sake of winning. Yes, you have put a lot of work into getting this property and you may feel as though you deserve to win; however, overbidding will end up hurting you when it is time to calculate your profits.
- Get a home inspection. This is invaluable. If at all possible, you will need to get the home inspected by a licensed professional. They will go through the home and pinpoint areas of concern or disrepair. This will give you an idea of the cost of bringing the home back to its original state.
Above all, finding great deals on foreclosed homes takes time, patience, and diligence. You can find a profitable investment. But for every one of these great finds, you will likely have to search several hours a day for several weeks. Persistence is key and will eventually pay off. Keeping yourself competitive by taking online classes can help you in the long run, too.