If you're considering getting into real estate investment, buying a foreclosed home is an attractive way to do it. After all, prices are usually so low that the home can be considered a steal. And you can use the leftover money to bring it up to your standards.
However, for the inexperienced real estate investor, foreclosures can come with a few unique challenges. To help you get started, here is a handy guide to the most important things to do before you start looking at foreclosure real estate for sale.
The more you understand the foreclosure market and its various aspects, the better a decision you can make when it comes time to buy. So, start by learning about the foreclosure process, the specific foreclosure market in your area, and what it all means for the houses involved. You may be able to find free homeowner classes in your local area or meet with other foreclosure owners in a community organization.
Choose a Type of Property
Distressed properties come in 3 major categories, each of which can have a different type of home and a different price range. Pre-foreclosure, or "short sale", homes tend to be in the best condition because they are usually still being lived in. If you don't want to make a lot of renovations, this may be the type of real estate for you.
Homes that do move into foreclosure often go to auction first. This may be the easiest place for an investor to acquire a property, but you often must have the cash handy to pay in whole.
Real Estate Owned (REO) properties are those that failed to sell at auction. This is another fast and easy place for investors to find homes for a great price – often the cheapest foreclosures available – but it means that the home may need so much work or be in a location that no one has found desirable so far.
By learning about the various levels of foreclosure and assessing the types of real estate for sale in your local region, you can decide which type of foreclosed housing will work best for you personally.
Have a Financial Buffer
Because you often buy a home that's in a deteriorated condition and you often buy it with cash, you should ensure that you're on solid financial footing before starting with distressed properties. Borrowing money to invest in foreclosures may not be easy, so you will likely need more available to put upfront on a property. In addition, foreclosures are sold "as is" – and sometimes sight-unseen – so you should be prepared (and able) to pay for significant remodeling.
By learning about the foreclosure market and getting yourself in a good position to buy comfortably, you can dive into this new real estate investment adventure with confidence and less stress.