Buying foreclosures is not much different from buying any other house on the market. However, there are small differences that are worth learning about just so you get a good deal.
We’ve compiled for you a quick guide on foreclosure investing; so, here goes…
Finding Homes
You can find foreclosed properties in several ways. Properties may be listed online on prominent websites, and real estate agents may have a complete list of local foreclosed properties. Also, the media like newspapers, bank notices, county office notices and government agencies are the best places to start with.
Buying a Foreclosed Home
There are three ways to buy a foreclosed home:
- Directly from the owner during pre-foreclosure, where you are likely to get a good deal, 20% to 40% below market value as the owner has the right to sell.
- Buying at an auction where the competition is intense. Competing investors can easily push up the property value but you are likely to get a discount of about 10% to 20% on the market rate.
- Buying directly from the bank, which is the most difficult as an unruffled lender is much more critical and the process is long and drawn out.
Doing Your Due Diligence
It is essential to gather all the information you can about foreclosed homes. The original owners may have vacated the property well in advance and the lender may not have current information on the property. They are also not under any legal obligation to disclose any potential problems to buyers.
Foreclosures are bought as is and it is vital that you do as much due diligence as possible about the property. It is also possible that you will have to evict squatters and then spend a fortune on renovations before you can sell.
Consider an HUD house
The Department of Housing and Urban Development has more than 40,000 homes in possession that are for sale or will be coming up for auction. The HUD has several conditions for selling these homes but these homes are maintained much better than other foreclosed homes. These properties are concentrated in Georgia, Indiana, Michigan, Ohio and other mortgage crisis states. The Department offers these homes to the local government for first choice and then to occupant buyers. If houses are still empty, investors are allowed to purchase these properties at an affordable rate.
Learn Local Foreclosure and Tax Laws
Foreclosure and tax laws vary from state to state. Before investing, find out whether your state is a mortgage state or a deed of trust state. Federal taxes, state tax liens and property tax liens will depend on whether your state is a mortgage state or a deed of trust state. Hiring a foreclosure accountant would be a good way to ensure that you are paying your taxes legally and correctly.
In Conclusion
If you plan to sell, make sure you have a buyer ready. Otherwise, it’s time to renovate and rent to cover your investment. Success is possible only if you have a carefully crafted enter-and-exit strategy in place.
