Is Buying a Foreclosure Really a Good Idea?

Is Buying a  Foreclosure Really a Good Idea?

Laying the groundwork for growth should include several market sectors, including foreclosures which can hold much potential for investors. Appropriately done, foreclosures are highly profitable investments due to the typically low cost to buy and instant equity—upgrades and renovations upon ownership quickly increase the equity further. 

There is an advantage in purchasing a vacant property; there will be no inconveniences from working around residents during the renovation process. However, do not even consider a leaseback contract on a foreclosure, as the previous owners have proven unable to afford the home. 

To best determine where foreclosures may fit into your real estate investment portfolio plans, you’ll need to do your homework to learn if buying a foreclosure is a good idea for you. First, it is helpful to understand that there are three types of property available to investors in the foreclosure sector.

Preforeclosure

Firstly, preforeclosures or property on which a foreclosure is imminent are options in this investing sector. Short sales, despite the name, can take a long time to reach fruition, so this venture is for those with plenty of patience. After approval by the lender, the owners may sell the property for an amount lower than the remaining debt; the lender’s presence complicates the deal as a third party on the contract. To protect yourself, ensure you’ll receive the home as it was at the time of the agreement, document the property’s condition in the contract.

Auction

The second type of foreclosure available is one purchased at the actual foreclosure and sale at the property’s auction; buying property in this manner can become a long and complicated procedure. But do not become emotionally involved in a bidding war and overpay; set a limit and stick to it.

REO

Often, the bids are too low at auction, and the banks retain ownership of the property. For example, when most investors buy a foreclosure, they purchase from the bank that foreclosed and took possession of the home, which failed to sell at the auction, referred to as bank-owned or real estate-owned property, REO. 

Due Diligence

No matter which type of foreclosure you find as your next investment, all of the following must be in place to ensure the best potential return on your investment (ROI). Real estate investing is a business like any other. Unless you have specialized in foreclosures, you’ll need some guidance to avoid the pitfalls; working with an experienced professional like those at Homely will help you come out on top. 

Location

When purchasing a foreclosure, you should analyze the area and check off your list of qualities that enhance long-term value, such as low crime rates, nearby conveniences such as shopping, and the quality and distance to local schools. In addition, if there is an HOA, now is the time to review the homeowners association rules regarding rental properties. You do not want to buy any liens along with the property, and finally, make sure to check the title, and title insurance may be advisable. 

ROI

Estimates for repairs and upgrades based on the inspection of the house will help you fill in the blanks, and an appraisal will help you calculate potential ROI. When you add up the costs for your foreclosure investment, do not forget to include the expenses of holding the property during the time estimated for completing the work. Knowing the ready-by date allows you to begin marketing the home for tenants or resale, depending on your exit strategy.

Financing

If you’re financing, a pre-approval letter will go a long way in the eyes of those reviewing your bid, along with a sizeable down. So, if you’re borrowing money to make your foreclosure investment, it pays to shop around and find the best option and determine your financing source. So, now that you have all of your ducks in a row and know you’re getting a great deal, it’s time to make your offer with confidence.

Teamwork

While there are investors that can wear the hat of landlords, real estate agents, and every profession in the construction industry, they are few and far between. For this reason, it is well worth investing your time and effort into networking with other like-minded investors and professionals in the industry to build a reliable team, always ready to jump into action when you find a potential foreclosure investment. 

Why not relax and let Homely guide you to success? 

You can rely on the professionals at Homely. Over the years, along with our professional investors, Homely has built a full-service team of the most highly recommended pros in the industry to serve investors like you. Check out the steady inventory of Homely listings of the best foreclosure deals available today. Contact Homely at (949) 289-9440 to learn more!

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