The housing market is cyclical and it currently is on a gradual rebound from the real estate collapse of 2008. The number of foreclosed properties is fewer than a few years ago, but there still are opportunities to buy a foreclosure at a respectable price.
Don’t know what you’re doing, don’t buy
Buying a foreclosed property is not for those who haven’t studied the foreclosure process as fully as possible before shopping for a foreclosure (aka real estate owned, REO, bank-owned). Study available online information, take community college courses, and attend seminars on investing in foreclosures.
Line up your financing ducks
The next step toward purchasing a foreclosure is to develop a detailed budget. Determine the absolute maximum you are willing to spend, including mortgage, property taxes, and insurance. Include some funding for potential repairs.
Then research REOs in your real estate market of interest.
Many foreclosed homes are in need of at least some rehabilitation. How much are you willing to spend on repairs? Are you planning to do the sweat equity or will you need to hire a contractor and crew to do the work?
Now look at your budget and list what you can afford to put into a down payment and earnest money. Will you have to take out a home loan?
Having the financing lined up before you place your bid on a foreclosure indicates to the selling financial institution that you are a serious buyer. Be aware that most REOs require this information along with your offer.
Be prepared to honor your budget and if the deal doesn’t come in under your limit, be prepared to walk away.
Buy smart
Some REOs are priced over market value. Know what like properties are selling for in the area. Several online real estate organizations list “comps” for the property in which you are interested as well as similar properties.
The REO bank typically doesn’t offer disclosure on a foreclosed property. Some homes are in terrible, even uninhabitable, condition. DO NOT consider, much less place a bid on, a foreclosure without first having a thorough property inspection completed by a licensed inspector. And be very cautious of any property that is listed significantly below market value. It may be hiding some serious issues.
Don’t go it alone: work with a real estate agent who has plenty of experience with foreclosures.
The good deal
A good deal in an REO property is one that needs little if any restoration. Or, it could be the rehab property that falls well within your budget and financing.
A stronger deal is the one for which you can pay cash. Be prepared to act quickly. Bidding wars on a desirable property can be common. Don’t lowball your offer. Make it clean, in cash (if possible), with few or no contingencies, and a quick close.
The best bet on a foreclosed property is the one for which you prepared – even before you began your search.