How to recognize a good deal in foreclosures?
The foreclosure market can provide some good value opportunities to acquire a property either for investment or as a home so long as you enter the process with your eyes wide open. Because the last owner may have suffered financial problems, the building will not be in prime condition and could need substantial repair or renovation. A good deal for you depends on how you will use the property and the skills and resources that you can deploy to restore it back to pristine condition.
Once you have scoured the web pages of the foreclosure sources; real estate brokers, the US Department of housing and Urban Development (HUD), the Department of Veteran Affairs (VA), the Federal National Mortgage Association (Fannie Mae), the Federal Deposit Insurance Corporation (FDIC), banking corporations and many others; and you have narrowed down your search to a list of ten or so possible target properties, you will be in a position to start judging which of them are feasible projects for you to undertake.
Always bear in mind at this stage that there could be additional problems with the title of the property that you will not uncover until a later date. Unscrambling these issues can be costly, so keep your options open and never become so emotionally involved with one property to the degree that you might find it difficult to back out at any point. If you are new to using foreclosures as an investment treat your time as a valuable commodity and don’t waste it on projects that look unrealistic.
In this respect the government bodies like HUD and VA can prove to be a better source since the titles are clear of liens which are claims against the property as security against loans. HUD and VA foreclosure properties are normally vacant and must be sold quickly, sometimes within a matter of days. To achieve this, the houses are priced at well below market value, sometimes as much as 50% but more often 5% to 10% and require only a nominal deposit to secure them. If you happen to be a law-enforcement officer, a teacher or a fire-fighter, HUD properties are offered to you at even lower prices through the purchasing programs structured for these professions.
Draw up a short-list of foreclosure properties that interest you and find out as much as you can from the web-site or advertisement. Read the details carefully as sellers must declare major problems but may not use clear language to do this. Check out the neighborhood and local amenities even if you are investing; quick resale will depend on a number of factors. Safety and convenience are usually high on everyone’s needs list.
Once you have satisfied yourself that you have one or more possibilities get mobile. Go see the property, even if you can’t get inside you’ll get a pretty good idea of its condition from the external view. If you are a real bargain hunter you’ll probably be looking at a property that has been classed “uninsurable” or “insurable with repair escrow” by HUD. In these cases some or all of the repair costs are factored into the mortgage or loan financing, to allow the buyer to spread the burden over a time period.
You must then judge whether you can project manage the repairs to the property in the time period demanded in the contract. For example 30 days is allowed in “Insurable with repair escrow” properties to inspect and distribute the monies as necessary. This may seem like a long time but when you consider that this includes assessing the work needed possibly with the assistance of an engineer or architect, inviting quotations, monitoring surveys, negotiating deals, comparing offers and receiving final quotes in writing it begins to look tight. Spread this across roofing, building, joinery, electrical, plumbing and heating contractors and it begins to look like a full-time job with overtime.
If this is feasible and the math works out you might just have stumbled across your deal of a lifetime. Foreclosures are marketed in many ways and generally they are all sold to you as the stuff of dreams. Do your homework carefully and be realistic about the hard work and it could be true.