Buying a Foreclosure
Investors can find some great deals when buying a foreclosure, but it takes a lot of work and know how. This strategy for real estate investing is not for the faint of heart. It takes discipline, good judgment, and good information.
There are two ways to purchase foreclosed homes – at an auction or directly from the bank that has already foreclosed on the property (REO). Either way, it is a good idea to work with a Realtor who specializes in foreclosed properties. These professionals frequently have contact with the banks and may have advance knowledge of available properties before they are listed on websites or announced at auction.
You’ll need to be preapproved for your mortgage before buying a foreclosed property. You should also plan for what you can afford, including the cost of the purchase, mortgage, fees, liens, taxes, and the cost of renovation if the property needs repairs. You can identify the prices of foreclosed real estate in your area by looking online for REO listings.
It’s important to work out the financing first, before you identify a home to purchase. There are often multiple bidders for foreclosed homes, and there likely is no time to pull together financing once you become interested in a property as with a conventional purchase. Financing definitely has to be in place if you buy at auction, along with a solid budget. Bidding can be quick and intense, and you don’t want to get caught up in it and overpay.
It’s also important to do a title search, and verify what liens are against the property. When buying foreclosures at auction, you may not have had the opportunity to do much of an inspection, so it is important to have as much information about the property and its history as possible.
Most realtors agree that when you buy a bank owned property, present your highest and best offer up front. If there are multiple bidders, you don’t want to lose the property for several thousand dollars because you were waiting to see if there was a counter offer. Like individual sellers, banks will consider offers based on reasonable price and solid financing.
Some investors prefer to find and purchase the property before foreclosure proceedings take place. They look up the public records of lis pendens (the notice of intent to foreclose) and contact the homeowner. Frequently the homeowner is in financial distress and may not have accepted the necessity to sell the property or the reality that they may be evicted. Investors who deal directly with owners can find some great bargains pre foreclosure and still have a sense that everyone wins with the transaction. They get the house they want at a great price, and the homeowner is out from under the burden.
It takes a special talent to work with owners pre foreclosure, but the same rules apply as with REOS and auctions – know the property, know your budget, and know your price.