Like unprocessed gold, foreclosed properties are unrefined. They’re, sometimes, hard-to-find, unattractive, and require extra work to close. Although buying foreclosed properties looks unattractive at first sight, experienced investors know that they’re priceless gems. These property types offer investors wider profit margins because they can buy them at discounted prices. However, investing in these types of properties is risky and, as a consequence, requires extra work.
So, in this article, we’ll be talking about foreclosure investing. But instead of the general overview of this real estate strategy, we’ll focus on a particular subsection of the real estate property types — the condominium. Here, we’ll walk you through everything you need to know about investing in condo foreclosure, including pros and cons, factors, and how to find these properties.
Related: What Makes Buying a Foreclosed Property Risky?
What are Foreclosed Condos?
Foreclosure is the repossession of a property by the lender (bank or private lenders) because the property owner defaults on their mortgage. Condos are privately-owned units within a residential community or building complex. Therefore, a foreclosed condo is a privately-owned unit within a building community repossessed by the lender and put up for sale to repay the mortgage.
At the surface level, buying a foreclosed condo can look like any other foreclosure deal. But a detailed analysis of this deal showed that investing in foreclosed condos requires extra work than the conventional. So investors interested in this property type need detailed analyses to make informed decisions about the property’s profitability.
Related: Are Condos a Good Investment for 2021?
Why You Should Invest in Foreclosed Condos
Investing in foreclosed property can be lucrative, but it requires extra work and a precise investment strategy. So before you decide on going all out to become a foreclosed condo investor, it’s advisable to go through the pros and cons of this strategy. Here are some benefits investing in foreclosed condos offers investors.
Sellers are Motivated
Because of the effect of foreclosure on a homeowner’s credit score, a pre-foreclosed property owner will prefer to sell off their property as soon as possible and prevent foreclosure. So instead of bargaining (offer and counteroffer processes like in the conventional home buying process), a seller will want to close the deal as soon as possible.
On the other hand, when the lender repossesses a property, they’re responsible for all the property fees, including utility, property tax, HOA fees, and so on. And the longer they hold on to the property, the harder it’s to recoup the mortgage. So, this means that the lender is willing to sell as soon as possible. That puts you at an advantage and makes it easier for you to determine the price you’re want to buy.
Another benefit is that you can buy a foreclosed property at a bargained price. A distressed seller who wants to avoid foreclosure would prefer to sell the property at a low price to repay the mortgage as soon as possible. So because of this urgency, the distressed condo seller will be willing to sell the property at a discounted price to facilitate faster closing.
Moreover, most foreclosed properties are sold as-is. And this means that you can bargain for a lower price depending on the property’s condition and your negotiation skill.
Like we’ve discussed before in this section, the underlying condition of the property means that the seller is not willing to bargain the deal — there may not be a counteroffer from the seller. So unlike conventional selling processes that take about three months to close, buying a foreclosed property takes a maximum of one month.
Challenges of Buying a Foreclosed Condominium
To have a balanced view of the foreclosed condo investment strategy, you should also know the challenges you can encounter during the buying process. Understanding the challenges and the problems attached to this strategy will let you make informed decisions and better prepare you for the investment strategy. So let’s talk about these challenges.
The property’s condition
Property owners who can’t afford to pay their mortgage may also be unable to maintain the property. For example, if the property owner can’t fix a leaking roof, it can cause more damages. Also, if the owner can’t meet up with monthly utility bills and property tax, the homes will be cut off from using these services. And if it takes much longer, it could lead to more problems.
Moreover, an embittered owner can intentionally vandalize the property. They may also decide to remove appliances from the property before it’s foreclosed. And because the foreclosed properties are sold as-is, the buyer will be responsible for the damages caused to the property.
A property selling at a discount price will likely attract more buyers, including fix-and-flip investors. And because of the competition, the chance of you getting noticed could be slim.
So as an investor interested in buying foreclosed condos, you should submit offers to several properties. That will increase your chance of getting a deal.
When a property is vacant for long, it could attract squatters. Squatters are individual who settles in an abandoned property that they have no legal claim to. And when you close the deal on the foreclosed condominium, you’d need to evict the squatter, even though they’re not legally obligated to the building. And eviction, as you know, can take several months, requires a lot of money, and extra work.
Buying a foreclosed condo from auction requires you to pay off any debt linked to the property, including liens, back taxes, defaulted HOA fees, liens from other lenders, property tax, and so on. That means even if you buy condominiums in foreclosure at a reasonably discounted price, it can still be a money pit because of the fees attached to it.
Therefore, before making your buying decision, ensure you run the numbers and check for any fees or defaulted payments that could be attached or linked to the property’s title. You can do this by visiting the municipal property record office.
Lengthy Stringent Process
While the conventional home buying process is stringent and lengthy, buying a condominium in foreclosure is even more demanding. The underlying condition of the property requires the parties involved to be aware of the deal, which leads to a lengthy process. It requires a lot of paperwork. For example, before a short sale can go through, the owner’s lender needs to scrutinize the buyer and approve the deal.
Furthermore, the buyer may not be able to secure funding if the property is severely damaged. A low appraisal means the property is riskier. And this may discourage the lender from funding the deal. Also, buying a real estate-owned (REO) property requires patience because it takes more time for the bank or lender to respond to offers.
How to Find Foreclosed Condos for Sale
Foreclosure is a great investment strategy for investors. It sells at a discount, offers a high ROI, and has a quick processing time. But the problem is that foreclosed condos for sale are not easier to find. So if you’re new to investing in condominiums in foreclosure, here are some places to find this type of property.
Talk to Real Estate Agent
The real estate agent can be your best option for finding a condo in foreclosure. Apart from them having experience in this niche, they have insider knowledge about the market. They can also take advantage of their vast network to help you with finding distressed properties.
Moreover, if your agent is well versed in the area, he can discover off-market foreclosure condos that are not listed yet. Also, talking to an agent means that you’ll have access to multiple listing services (MLS) where most lenders list REO properties.
Real Estate Owned (REO) section of Banks
REOs are properties that don’t sell at auction, and so they’re now in the custody of the bank or lending firm. So if you want to buy a condo in foreclosure, inquire from lending firms and banks. Visit any bank branch or website.
Another way to find foreclosed condos for sale is by checking out property listing websites. A property listing website is a real estate online marketplace where sellers, real estate agents, solicitors, and brokers list properties for sale. Unlike the MLS, the listing website is accessible to anyone, and you can deal directly with the buyer.
The Mashvisor Property Marketplace is an online marketplace that allows investors to find a wide range of properties for sale. It’s a comprehensive database that lists all kinds of off-market properties. Apart from giving you access to off-market properties, Mashvisor marketplace helps you analyze investment potential. It also grants you access to sellers’ information, which allows you to connect and deal directly with the seller with no intermediary.
Check the County Record
Foreclosure is a legal process. That means before a building is foreclosed, it must go through some routes, like sending default notices to the homeowner and reporting to the law, which is recorded in the county record.
So if you want to buy a foreclosed property, check out the county record. Search through the public records for Notice of sale, Notice of Default, and lis pendens. These notices signal that the property is about to be foreclosed. Accessing the county record also lets you know properties that may be likely to enter foreclosure soon. That puts you ahead of others because you can contact the distressed seller and close a deal before the property enters foreclosure.
Factors to Consider Before Investing in Foreclosed Condos for Sale
Like we said before, buying condominiums foreclosure is different from conventional foreclosure deals. You should check the rules guiding the condo community, local and state laws, and so on. So, if you want to invest in condominiums in foreclosure, here are some factors to consider for successful deals.
Location of the Condominium community
Even when you don’t own the entire property, location is also a significant factor in making an informed decision. As a real estate investor, you likely won’t hold on to the property forever. That means you need to think about the end from the beginning. Is the location on the upswing? Are there any proposed developments that could improve the future value of the property? How desirable is this location to other people? These questions shed more light on the profitability of buying properties in this location.
Furthermore, you’re probably investing in the foreclosed condo to either flip or convert it to a long- or short-term rental property. And for you to be successful at any of these, you need to have prospective buyers or renters in mind. So what’s the desirability of the location to prospective buyers and renters? What’s the demand for these properties? With these, you can make informed decisions.
Rules and Local Laws
The operating process of a condo is entirely different from that of a single-family or multi-family property. In a single- or multi-family property, you’re responsible for both interior and exterior of the property. Whereas, as a condo owner, you’re only responsible for the interior. The condo community’s management team is responsible for taking care of the property’s exterior. That means that you’re subjected to obey rules about the property’s exterior use.
So before investing in a foreclosed condo, ensure you understand the rules and laws guiding the use of the property. What part of the property are you responsible for? How does the HOA respond to complaints? You can find answers to these questions and others by requesting and reading the latest HOA rules and guidelines.
Unlike the single-family and multi-family properties that become yours at closing, the condo is not yours — you’re only responsible for your unit. The management team maintains the property’s exterior. And this requires you to pay a monthly maintenance fee.
Apart from the maintenance fees, condo owners also need to make other monthly payments (like the property tax, HOA fee, and so on). So, before buying a condo, ensure you check the fees attached to the property. Run the numbers and make sure investing in this type of property is profitable.
Like we said in the introduction, foreclosed condos are raw gold waiting to be unraveled by an experienced individual. Investing in this property type is lucrative and less strenuous, but it’s riskier. We believe that after reading this in-depth guide, you now know how to go about investing in foreclosed properties.