Investing in foreclosures can be very profitable if you follow this guide!
We have all watched those TV shows where someone purchases a distressed property and magically turns it into a dream house instantly. These shows get us excited about the possibilities of investing in foreclosures and making a ton of money. But there is an obvious issue here.
The problem is that you’re watching everything happen in a one-hour episode. What these shows don’t tell you is that it takes more to acquire a valuable foreclosed investment property in terms of time and effort.
Related: Is Buying Foreclosed Homes a Smart Real Estate Investment?
So, if you are a beginner real estate investor and planning on buying rental properties off the foreclosure list, you must read this guide to ensure you make the most profitable investment.
#1. First Things First…
Before you start your investment property search, why don’t you find out a couple of things about foreclosure investments first?
It is essential, as a beginner investor, that you have a proper real estate education before you start investing in foreclosures. So, before you move on to the rest of the article, here are a few great resources to learn about foreclosed homes:
The Pros and Cons of Buying a Foreclosure
Real Estate Investing for Beginners: Avoid These Mistakes When Buying a Foreclosure
Myth-busters: 6 Myths and Truths About Buying Foreclosed Homes
Learn more by visiting Mashvisor’s Real Estate Investing Blog.
#2. Secure Investment Property Financing
Financing a foreclosure is the next step you want to consider. You need to get pre-approved for a loan. So check with your mortgage lender and see how much you can borrow based on your credit. Also, make sure you have the 20% down payment required for the transaction.
If you have a concrete plan for selling the investment property quickly, then hard money loans might be a good option when investing in foreclosures.
Related: 7 Easy Methods for Investment Property Financing
When it comes to investment property financing, there is one thing beginner real estate investors tend to overlook, and it gets them in trouble: Investing in foreclosures comes with renovation costs. The whole purpose of this real estate investment strategy is to buy a distressed property below market value that needs renovations. So make sure you have the kind of cash for that as well.
#3. Study the Market
Investing in foreclosures requires that you study the market. Of course, foreclosed properties are sold below market value most of the time. Therefore, you want to learn as much as possible about the real estate market in the location of interest. That way, you can make sure that you are actually buying the property lower than the market value.
Why is this important when buying foreclosed homes? Because what determines the amount of profit you’ll make is the difference between the purchase price and the actual market price.
You can do all that by using an investment property calculator. It will provide real estate comps for foreclosed homes for sale to help you conduct a thorough comparative market analysis. With this real estate tool, you’ll know that you are paying the right price at the right time and place.
#4. Conduct Investment Property Analysis
When investing in foreclosures, you do not just jump at the first property you find. In fact, this is what we meant in the beginning when we said that it takes time and effort. You’ll have to perform a thorough investment property analysis on the properties. It’s the most critical part of the entire process! During your analysis, you will be looking for the best real estate investments that reflect the highest potential for return on investment. So, the higher the number, the better of an investment that is.
Here, too, you might want to use the investment property calculator. Really, it is an all in one tool that will deal with all the numbers for you. In a matter of minutes, you’ll know whether that foreclosed home is worthwhile or not.
Related: What Are the Most Important Metrics in Real Estate Investment Property Analysis?
#5. Get a Home Inspection
Never EVER skip the home inspection when investing in foreclosures. Now, a real estate inspector should be able to detect ALL that is wrong with the investment property and estimate the cost of renovations. He/she will provide you with a report of everything that needs to be taken care of for you to make a decision. If the costs make sense, then go ahead and make the offer. If not, move on to the next investment property on your list.
#6. Congratulations! But…
At this point, you have already found a profitable investment property and are ready to start investing. Congratulations. Keep in mind, however, that it does not end here. Foreclosures make for the best rental properties. But for that to be true, you must keep a close eye on the property. Constant maintenance is essential. Furthermore, periodic investment property analysis is critical to making sure that your property is performing well.
Final Tips for Investing in Foreclosures
For foreclosure investments to be profitable, you need to work with a real estate agent. At an early stage in the real estate business, you shouldn’t work alone until you acquire enough experience.
Also, you want to make sure you check multiple places before you purchase an investment property. For example, don’t just go to the MLS site when you can check the local newspaper, the local bank listings, and other sources.
Auctions are another place that comes to mind when speaking of investing in foreclosures. But, auctions are exactly where you need to be careful. There have been situations where real estate investors bought foreclosures for higher than the market value. Remember that auctions are all about competitive bidding. Therefore, there is a chance you could end up paying more than what it’s worth.
Related: Buying a Foreclosed Home at House Auctions: What Real Estate Investors Should Know
Are you still confused about how to find foreclosed homes for sale? I recommend checking out Mashvisor’s real estate investment tools that will help you go through the previous steps in almost no time. The Property Finder is there for you as well as Mashvisor’s Investment Property Calculator. You can also check the Agents Directory to find experienced real estate agents in your area.