Foreclosed properties can prove an attractive investment, but only if you proceed with proper care, due diligence and the same old-fashioned business sense you’d apply to any large-scale transaction. Here are some “dos and don’ts” to bear in mind:
Study the market
Consult a reliable realty website that shows up-to-date properties for sale in your target area. Pay close attention to what these sellers are asking for the amenities offered.
Evaluate the neighborhood’s crime rate and others factors that might be influencing the foreclosure.
Hire an agent
A qualified, experienced real estate agent can guide through every step of the shopping and buying process, removing hours of frustrating trial and error on your part. Your agent can also put all the necessary paperwork in front of you to make sure no detail of the process gets overlooked until too late.
Figure out what you want to spend
Do some number crunching to determine what kind of payments schedule best meets your means and comfort level. These calculations should have the side benefit of narrowing your search. If the property is likely a “fixer upper”, be sure to add a healthy margin for repairs and renovations.
Throw out an offer prematurely
If you see a foreclosure property that resembles exactly what you’re looking for, resist the urge to put up an offer immediately. That beautiful facade may be hiding serious problems, so always order an inspection before talking price. Some components such as HVAC or plumbing systems may require independent inspections from specialists in those areas.
Once you know how much it will cost to make the property worthwhile, you can either subtract that amount from your offer or force the seller to make the repairs before closing. (This also means that you should probably not buy an auctioned property either, especially since such properties may also have liens on them.)
Expect a quick flip for big money
If you are buying a foreclosed property with the idea of making overnight profits, think again. Foreclosures generally need time, care and attention from their new owners, and your city or neighborhood association may require you make the necessary structural and cosmetic repairs to yours.
On the plus side, these changes can have a positive impact on the neighborhood while also improving your chances of eventually selling the property for a profit.