Posted on Apr 10, 2010 03:56:42 AM
The recent housing boom and bust has resulted in many broken homes and tragic stories of bankruptcy. No one wants to be insensitive about it, but in truth something positive has come from the wreckage: a huge number of foreclosed homes, ripe for the picking as investment properties.
Market prices for homes have dropped precipitously, and an additional discount of up to 40% below market price can sometimes be had on foreclosed homes. That said, most discounts on foreclosures are closer to 5%–so don’t hold your breath waiting for that million-dollar home for $80K. Additionally, the foreclosure process often takes longer than you might expect: up to a year from the time the previous owner first falls behind on his/her mortgage payment. This means that much time will have passed since the most recent regular maintenance or property improvements occurred.
Because of this, you’ll want to be extra careful when looking at foreclosed homes to buy and use for rental property. Foreclosed properties can be in decent shape at times, but there will usually be at least one thing wrong with them. If you aren’t sure whether a property is worth buying for your portfolio, consider the location. If the neighborhood is good, and the house is surrounded by well-maintained homes with high or increasing valuations, consider buying that fixer-upper.
If you’re interested in foreclosures, you’ll need to do your research. Take a trip to the library or, better yet, use the internet to find the specifics on your state’s foreclosure laws. Some states require lawsuits from the banks against the homeowners before they can evict (called judicial foreclosure), while others follow non-judicial processes.
Your best bet? Buy your investment properties from the banks themselves after they claim them as foreclosures. While they’ll often use real estate agents to sell their newly reclaimed properties, you can succeed in dealing with the bank directly (cut out that middle man and his fees!) if you’re persistent with your offers and the property doesn’t sell. If you succeed in buying a foreclosed property like this, one that has already gone all the way through the process to be under the bank’s complete ownership, you’ll usually be able to avoid paying to have the property appraised as well because they will have just done it recently. It will also often include title insurance that will remove the risk that you would have encountered from buying the properties earlier on in the foreclosure process.
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