Five Smart Moves for Buying a Foreclosure by Jeff Adams

Investing in a foreclosure is not always a good idea. The owners may have already vacated most of these houses and there is a good chance that the house is in dire need of repair. There might be squatters in the house and you might even end up paying more than the market rate for the house. To prevent this from happening, it is necessary to research the foreclosure market as much as possible.

We’ve listed the five smartest moves for investors considering entering the foreclosure market.

Smart Move # 1 – Always Check the Home before Purchase

Owners or squatters may have ripped everything from the home and there is a chance that you will be buying a huge fixer-upper or a partially demolished home. Instead of wasting your money, take the time to view the foreclosed home before purchase.

Smart move # 2 – Know the Market Value

Before you invest in an area, take the time to research the local rates and the market value of a home in the area. Remember that the market value will always be more than the value of the foreclosed home. If you are buying at the auction, keep this figure in mind and bid well below the market value.

If you can, use a local real estate agent to find out the exact value of homes in the area or use an online expert source like Zillow to ascertain the value of the area. However, use these sources just as a guideline as foreclosed homes will usually require repair. To protect yourself, put in a ‘subject to’ clause in your purchase contract. In case your bid is too high and the market value of the house is low, this clause allows you an escape route out of the purchase.

Smart move # 3 – Estimate Repair Costs

Many foreclosed homes require extensive refurbishment. Before purchase, estimate how much you will require for repair. It is a good idea to apply for buying and refurbishing financing to cover the repair costs. The loan will cover the purchase and closing costs and it will also provide cash for repairing the house. Once you rent or flip the house, you can then pay off the loan quickly.

Smart move # 4 – Plan Your Moves before Setting Out

Buying foreclosed property is simple but make sure you plan your purchasing strategy well in advance. Have a budget ready and make sure you stick to it to ensure a profit.

Smart move # 5 – Consider a HUD Home

The Department of Housing and Urban Development has approximately 20,000 homes ready for sale. These foreclosed homes are in slightly better shape as the HUD has been taking care of these properties. You should start checking out these properties for investment.

The Bottom Line

If you do your research carefully, you can easily find wonderful properties in a great price range. Just take the time to do the legwork properly before you go ahead and invest in the market.