Essential Tips for Buying Foreclosed Homes

Posted on 03. Jan, 2011 by LuxSpaces in Real Estate 101

Buying foreclosed homes can be profitable, if you understand these essential tips.

Buying foreclosed property, whether unimproved land or foreclosure homes, demands sound strategy, rooted in investment fundamentals. Time and experience in the business will reinforce the knowledge you acquire through study, attending seminars and conversation with colleagues engaged in foreclosure investing.

To introduce you to the rewarding practice of buying foreclosed homes, we’ve assembled half a dozen essential tips for foreclosure investing. Rookies and veterans alike should proceed with a business plan in mind, if not fully written, to keep the process of acquiring a foreclosure home right on track.

What to Do Before Buying Foreclosed Homes

Study the local market before buying foreclosed homes. Without a firm grasp of relative and comparable home values in your local markets, you leave the profitability when you buy a foreclosure almost completely up to chance. That’s not investing; that’s dropping money down a hole in the hope that it bounces back higher than before. Local market knowledge helps determine suitable bid levels, both low and high; helps you factor in improvement costs; and helps you to project a resale price, if resale is your plan.

Understand the laws about buying foreclosed homes. Does the town in which you intend to buy a foreclosed home insist that you reside in the dwelling a minimum of six months prior to flipping? True Realtors and, especially, real estate attorneys can advise you on the essential laws to understand in any given district.

When looking to buy foreclosed homes, be a vigilant scout. Sharp eyes spot foreclosure investment potential before it hits the market. Scour neighborhoods during weekend drive-bys. Contact local banks for foreclosure lists and eviction notices. Remember, the banks are motivated sellers, often primed to help you buy a foreclosure home.

Plan foreclosure investments clearly. Investing goals are difficult to meet absent a workable plan. Leave as little as possible to chance, and know as much about your level of risk as possible prior to laying down dime one. Perhaps this foreclosure property purchase will become your permanent residence; perhaps you intend to resell it; perhaps you intend to resell it subsequent to major renovation. What you pay for the dwelling and how you can pursue funding for the investment may differ with each scenario. Lenders sometimes insist upon written plans.

If you’re buying foreclosed homes, target the most motivated lenders. Foreclosure investing involves buying from lenders, who wish to move these non-performing assets from money drain to income source. Targeting foreclosure properties that have been long on the market, and thus a bigger drain than necessary to the lender, raises your chances to find a more motivated seller and, thereby, a better price.

Pre-sell. Have a buyer ready before purchasing a foreclosed home. Having a buyer in your pocket prior to the purchase of a foreclosure is ideal. Your lender will love the situation, and be willing to tilt terms in your favor. Moreover, the process will speed up.

Buying foreclosed homes can be very profitable, and fun, too, but your odds of success are greatly enhanced when you first spend time developing your understanding of a process in which knowledge, funding and power intertwine.