How to find the right foreclosures?
Whether you are investing in a foreclosure for the first time or buying one to renovate and live in, it is important to understand what you might be letting yourself in for. It is also important that you start understanding the market so that you can select the most appropriate properties to consider. The foreclosure market is burgeoning both in terms of the number of properties becoming available and also the number of people showing interest, so you will need to be motivated to get around all the available options and quick off the block when the ideal property presents itself.
First, let’s deal with sources of information. Foreclosures are basically properties that have been repossessed by lending and mortgage companies when the original title-holders have defaulted on their repayments. In the current economic climate, defaulters are allowed to go quite a long way down the line before repossession actually happens because it’s not in their interest to have a high proportion of their borrowers being de-housed.
You’ll find plenty of local sources of information in your area or regional newspapers and real-estate brokers. There are also the Government agencies that have helped house buyers onto the ownership ladder: the US Department of Housing and Urban Development (HUD), The Department of Veterans Affairs (VA) and the Federal Deposit Insurance Corporation (FDIC) amongst many. The Federal National Mortgage Association (Fannie Mae) and the Federal National Home Loan Mortgage Corporation (Freddie Mac) are also nation-wide lenders and, logically, title-holders of foreclosed properties as are the many banking corporations.
These sources, along with countless others are now accessible on the internet, making the search for properties more of a desk job than it used to be. However the sheer volume of properties can be quite daunting, so it pays to work out a specification of what you are looking to buy before you go searching.
You should expect most foreclosed properties to be in a “distressed” state. Previous owners will, understandably, have carried out the bare minimum in maintenance to guarantee that they escape from their debt with the least pain. This can mean that decoration, electrical and plumbing upgrading has been neglected for some years or it may mean that the roof is badly damaged, windows and doors are missing or there is fire damage. Although some agencies will carry out basic repairs before the sale, these are rarely guaranteed and almost every foreclosure comes with a repair or renovation bill.
If you are intending to invest in foreclosure property, you should be looking to turn it around in the shortest possible time and make the most out of the resale at the same time. This means that you should become as emotionally detached as it is possible to be. You should balance the renovation complexity and cost with your budget and your project management skills. Too many investments of this type fail because the buyer does not understand the importance of having the house back on the market in a matter of weeks rather than months.
An investor need not pay too much attention to the beauty of the property, its size or its location as long as it has resale potential in excess of the total purchase and renovation costs. A foreclosure buyer who intends to live in his or her purchase will take a much keener interest in the location and the neighborhood. They will expect to become emotionally attached to a property and may be happy to take on a much larger house than they would normally consider, just because it is less expensive. They won’t need to re-market the property quickly so they know exactly how much “distress” they can live with and for how long.
The specifications, as you can see, are quite different and depend very much on your personal finances and your ability to commit time to your project.
With your specification written out, use it ruthlessly to thin down the listings of foreclosures that you discover in your research. A daylight viewing of your long list of potential purchases then needs to be scheduled. You may not get inside the buildings at this point but you’ll be surprised just how many you can reject on external viewing alone.
Contact the title-holders of your resulting short list, arrange an internal viewing then do the math to decide whether they are viable projects for you.