Are you in the lookout for affordable properties to invest in? Are you new to the real estate business? Buying property is considered a part of the real estate industry as well as selling or brokering one. If you have answered yes to the previous questions, there is no need to worry. This article will give you ideas on how to scout and buy affordable properties, specifically foreclosed ones. Buying a foreclosed property can be quite confusing when you are clueless about what you do. You may even end up losing instead of gaining from buying investment property that is easy on the pocket. You may have a lot of questions in mind regarding buying properties whether it’s about buying rental property or buying commercial property. Below are some of the most common and frequently asked questions about buying foreclosed properties and the various kinds of real estate investments that promise a good return.
What Are Foreclosed Properties?
Foreclosed properties or repossessed properties are real estate properties that are seized by the mortgage lender (usually the bank) when the mortgage buyer fails to continue paying for the monthly mortgage or the principal of the property. Foreclosed properties undergo a legal process before they are declared foreclosed and can be seized by the lender. In which case, the borrower will have no other choice but to let the lender re-acquire the property. The property is then put back to the market to be sold. Foreclosed properties are usually categorized as distressed properties because of the legal process they usually undergo and their conditions because of a long period of vacancy.
What Are The Most Common Red Flags That I Must Watch Out For When Buying A Foreclosed Property?
When it is your first time to buy a property, let alone a distressed property, you must always know the red flags before you go straight to having a negotiation with the seller. Red flags that may be shown by a re-possessed property are (1) liens – which refers to any right or obligation the previous owner has over the property like payable interests. Liens may be transferred to you when you buy the property. It is important that you ask the seller about the property’s liens. To make sure, ask to see the property’s title and see if there are liens to the property.
Another red flag is (2) the property’s physical condition. When buying a foreclosed property, you have to make sure that its condition is still worth its price. Don’t rush to buying a repossessed property without seeing it personally simply because it is very affordable. You might just end up paying more for repairs and maintenance when it is not in tip-top shape especially when you have plans of flipping it. When buying a foreclosed property, make it a point to personally inspect it (if you have an eye about such matter). You can also ask for the property’s SPDS or Seller’s Property Disclosure Statement which contains information about the property’s historical condition like repairs, inspections, and maintenance done. When the seller cannot present you such (there are states that require SPDS) and property appraisal is not your cup of tea, then you need to have a professional inspector evaluate the property. He will know if the property’s price is good as far as its condition is concerned and the necessary repairs that you may need should you buy the property. This way, you will know if you can make a profit out of acquiring it or you will just spend more on repairs.
Also, (3) if the property is located in a “ghost town” it might not be a very good investment idea. Especially when you are planning to flip the property, you will have a hard time finding a buyer for it. Nobody wants to do business or raise a family in a ghost town.
Are Foreclosed Properties Always Cheaper And More Practical To Buy?
Some property buyers find repossessed properties very attractive and think that they are great investments whether to turn them into second homes or saleable properties. Some scout for foreclosed properties, buy them in the cheap and flip (recondition and re-sell) them. Through such process, they may get up to 50% more than what they have spent on acquiring the property plus expenses in reconditioning it. However, not all foreclosed properties are affordable. Prices may also depend on the current market condition and they could vary from state to state. There are also distressed properties that are “cheap” solely because they are not in great shape. If you buy them, you will just end up spending more than what you will actually spend in buying a non-foreclosed property. This is very important when you have plans to make property flipping a business.
Which Is A Better Way To Acquire Foreclosed Property, Self-Financing Or Through A Bank Loan?
When it comes to financing the acquisition of a foreclosed property, you need to take a look at your ability to purchase. Do you have enough cash sitting in the bank to buy the property? What are you planning to do with the property, re-sell it or make it into a second home? Is the market in great condition to acquire a property and flip it? Such questions may reveal hints regarding the best way to acquire the property.
If you have enough cash and your current financial status is favorable by the bank, you can just take out a loan to buy the property. If you can sell it fast after a little reconditioning, you can either get a loan or take out your own money for the acquisition. However, when the market is not good for property flipping, using your own money to buy it will not give you profit. You could have used your money for some other profitable means. Acquiring the property through a loan will just cost you interest when you cannot sell the property fast.
How Do I Compute If I Could Make A Profit Or Not Out Of A Foreclosed Property Acquisition?
When buying a real estate property, you must always think at the margin. Always think about the profit you are going to make out of the property acquisition. It is pointless to buy a property and lose some money out of it. You will most likely make some money from a quick re-sell especially if you have acquired the property in cash. To compute for the selling price of the property, know the current market value of foreclosed properties. Analyze the condition of the neighborhood. If the neighboring properties have good market prices, you might as well go with their rates. Remember that real estate properties are neighborhood dependent. Add in your acquisition cost, repairs done to the property, commission, inspection costs, taxes and insurance. Determine a selling price and deduct all the costs from it. The remaining amount will be your profit.