Buying Investment Property Dos and Don’ts of Purchasing a Foreclosed Home by Ford Hudson December 5, 2019February 25, 2020 by Ford Hudson December 5, 2019February 25, 2020 By all accounts, the American real estate market is on the upswing for sellers, with property values and mortgage rates rising. But that doesn’t mean that it’s not a hot time to buy. In fact, the experts recommend snatching up that investment property ASAP before interest rates climb even higher. One of the best ways to snag a worthwhile flip or fixer-upper is to buy a foreclosed home, otherwise known as a real estate owned (REO) property. But excelling in the foreclosure game takes finesse, and you’ve got to know what you’re doing. Here are a few of our best tips for getting started. What Is a Foreclosed Home? Before we jump into the nitty-gritty, let’s lay down a few quick basics. A foreclosed home is a home that is taken over by the bank in a legal process after an owner is unable to pay the outstanding debt on that home. In short, during a foreclosure, the bank takes over the house from the former owner and offers it up for sale or auction to the general public. Naturally, because the bank simply wants to recoup some of what it has lost, savvy buyers are often able to snatch up these properties for a steal. To put it into numbers, foreclosures tend to go at a discount of about 37 percent in some markets. So, yes, the savings can definitely be worth the extra effort. But you want to make sure you do things the right way to avoid missed opportunities, bad investments, and time-sucking money pits. Dos and Don’ts of Foreclosed Homes Do: Look in the Right Places Buyers can generally find foreclosed houses the same way they’d find other properties, by scouring Zillow, Trulia, and Redfin, but also by showing up at auctions and hiring specialty real estate agents. The best plan of action is to use your typical methods of hunting down investment properties to identify which ones are worthwhile and then to show up at the auctions or have your agent set up a walk-through so you can see the property firsthand. Related: How to Find Foreclosures: The 9 Best Ways Do: Buy in the Right Areas Not only should you be looking for houses through the right channels, but you should also be focusing on high-value neighborhoods, cities, and counties. Do some research on the real estate market where you’re looking, as the foreclosure potential—both availability and return on investment (ROI)—can vary greatly from one area to the next. Right now, foreclosure activity is at a country-wide low, but the potential is still high in some states, including New Jersey, Maryland, Delaware, Illinois, and Florida. Make sure the area where you’re looking has plenty of options and a history of a high ROI on foreclosure before investing. Don’t: Use a Single Method of Hunting Finding solid REO properties takes tenacity, patience, and work. For the best possible results, diversify your strategy. Some counties hold sheriff’s sales of properties that have unpaid taxes or mortgages, so make sure to check those listings regularly while also scouring the internet and newspaper. Do: Prepare to Make Upgrades The biggest drawback of purchasing a foreclosed home is that these properties are often neglected, abandoned or simply in all-around deplorable conditions. The fact of the matter is that they usually require investors or buyers who are willing to perform some upgrades to make the house more livable, more enjoyable, more attractive or safer. Don’t: Let This Deter You House restoration and renovation projects are no-doubt stressful and they can eat into your budget, but remember that remodels can be as affordable and simple or as expensive and complex as you want them to be. There are countertop, structure and flooring options available for virtually any budget. And, these days, you’ll find a shocking number of DIY-friendly finishes out there, perfect for first-time fixer-uppers or not-so-handy homeowners. Do: Set Up Alerts on Your Phone Despite the fact that foreclosed homes are sometimes abandoned or left in a state of neglect, they’re still massively popular, especially in highly competitive markets. Do whatever you can to ensure that you see every viable listing. Setting up phone or e-mail notifications will help ensure that you’re always the first (or one of the first few) people to see the listing. Don’t: Let Good Opportunities Slip By Serious buyers need to be constantly monitoring available listings and existing in a “ready to move” state of mind. Smart real estate investors and buyers don’t dilly-dally, and most people will have a few letdowns before they finally win the big property. Act quickly and have offer letters pre-written, but don’t be hasty. The best deals take the ability to think quickly but clearly and rationally. Do: Have an “Ideal Property” Profile Before you even begin thumbing through Zillow, open up a blank Google Doc and start fleshing out your idea of an ideal foreclosure to buy and spend some time coming to a realistic but competitive price ceiling. Know your ideal area—down to the specific street or neighborhood—as well as square footage, school district, home features, and price. Categorize your list by needs, wants, and frills. Don’t: Ignore Your Gut It happens all the time: Buyers find a home that ticks all of their needs and a few of their wants, but something feels off. While it’s totally normal to get cold feet or bidder’s remorse, you should feel confident in your decision after you’ve sat down and thought things through rationally. Don’t ignore feelings of worry or you’ll find yourself regretting your decision in the future. Getting into the Right Mindset When done with the right strategy, investing in a foreclosed home can bring big returns. The key is to approach the searching and buying process with a tenacious, competitive spirit, and to not be deterred by properties that need work. At the same time, successful investors aren’t flippant—they spend the time pondering what will work for them and their portfolio. As long as you keep the aforementioned considerations in mind, you should be able to nab a high-value property that’ll make you money down the road. This article has been contributed by Ford Hudson. Start Your Investment Property Search! START FREE TRIAL ForeclosuresGuest Blogs 0 FacebookTwitterGoogle +PinterestLinkedin Ford Hudson Ford Hudson serves as the Director of Marketing for Twenty & Oak. He oversees all marketing and branding efforts for the Southeast’s go-to place for stylish, high-quality flooring. Previous Post US Housing Market Forecast 2020: Key Takeaways from Realtor’s Predictions Next Post How to Invest in Real Estate: 10 Ways for 2020 Related Posts How to Find Positive Cash Flow Properties Making the Best Real Estate Investments Based on the Cap Rate Why a Residential Real Estate Investment Is the Go-To Option Should You Buy a Foreclosed Home When Looking for Investment Properties? Best Places for Vacation Home Rentals in the Second Quarter of 2018 – Part 1 The 5 Most Profitable Airbnb Locations According to Mashvisor’s Investment Property Calculator Learn How to Buy a Foreclosure Home by Following These Steps Real Estate Investing vs. 401k: Which Should You Go For? Top 5 Sources for Your Rental Property Search 5 Best Real Estate Investor Marketing Strategies Software for Remote Real Estate Investing How to Buy the Best and Most Profitable Rental Properties Leave a Comment Cancel Reply Save my name, email, and website in this browser for the next time I comment.