Buying a foreclosed home is often a great investment opportunity for real estate investors. There are many advantages of investing in foreclosures that are beyond the property’s price. Therefore, you want to make sure that you do not only buy a foreclosed home but that you get the best deal when buying one. So, what are the advantages of buying a foreclosed home? More importantly, how to go about striking the best foreclosure real estate deals?
Related: Real Estate Investing for Beginners: Avoid These Mistakes When Buying a Foreclosure.
The advantages of buying a foreclosed home
Buying a foreclosed home can be the best investment opportunity for four main reasons:
First, the property price: As you already know, foreclosure is a legal procedure against those property owners who fail to pay the mortgage. In order to retrieve their money, lenders tend to offer the property for less than its original market value. So, you get to buy an investment property for less and generate a greater return on investment out of it.
Second, the variety of property types: The great thing in foreclosure is that you can find a wide variety of properties. They could be ordinary houses, or a whole apartment building, or even a luxurious house in a fancy neighborhood. In this case, you get to decide what you want to invest in based on your financing situation. However, whatever property you choose, make sure you do the due diligence properly.
Third, you can get it at a discount: Of course, we do not mean that this is always the case. Sometimes, a foreclosed home is offered at a non-negotiable price because it is already selling at a low price. However, sometimes banks are willing to offer you the property at a good discount to get rid of it. The more they hold on to the foreclosed property, the more it costs them.
Fourth, appreciation: We bet that this is the best part for you so far. The moment you are done with buying a foreclosed home, you build equity. Foreclosures are not always in a bad shape. Sometimes, they just need some minor repairs that will cost you a couple hundred dollars. These factors will contribute to the property’s appreciation as soon as it is ready. The more you hold on to the property, the higher appreciation rate it experiences. By the time you sell the real estate property, you will be able to make a great profit out of it.
How to go about buying a foreclosed home?
Buying a foreclosed home is no different from buying an investment property in general. You must know that real estate investing is all about procedures. Therefore, all you have to do is to follow these steps:
First, plan an investment property financing strategy
No matter what business you want to get into, finances come in the first place. This is also the case with buying a foreclosed home. Therefore, what you need to be doing first is shopping for mortgages or any other financing strategies. Make sure you find the best deal, then go ahead and apply. Now, in case you are considering a mortgage financing, then you have to get pre-approved for that first. Of course, if you have the cash to fund your investment, then go ahead. This will make it easier for you to get the deal. Foreclosure sellers tend to prioritize cash payers over those who get external financing.
Related: Learn About the Myriad of Investment Property Financing Strategies
Second, start looking for foreclosed properties
Now that you have figured out your investment property financing strategy, go ahead and do the research. There are plenty of sources where you could find foreclosed homes for sale. The internet is the easiest way, of course. But in case you do not have access to it or are not good at online searches, then go ahead and look in newspapers. There are always adds for foreclosed homes. You can also check bank’s websites and check if they have any foreclosed property listed for sale. All in all, if you fail to find one yourself, you could use the services of a real estate agent as we are going to talk about it in the next section.
Third, hire a real estate agent
Buying a foreclosed home is not so easy. It takes more than just the will and the money to buy it. Therefore, getting professional assistance is necessary to strike the best real estate deals on foreclosures. Find a real estate agent who is an expert on foreclosed homes. He/she will help you find the best deal based on your requirements and resources. After all, a real estate agent has worked with so many foreclosures that he/she knows where to look for them. Not only that, but he/she will help you do the calculations necessary for profitable investment properties.
Related: Do You Need to Find a Real Estate Agent to Buy Investment Rental Properties?
Fourth, conduct investment property analysis
The secret to striking the best real estate deals when buying a foreclosed home is investment property analysis. Estimating the return on investment for a property is essential in order to determine the investment potential of a foreclosed property. Therefore, what you do is you use the different valuation tools of a real estate property. These tools are the cap rate calculator, the cash on cash return calculator, and the rental income calculator. They are very important when it comes to finding deals with the highest potential of return.
Fifth, compare properties
Comparing similar properties within the same location is important. You want to make sure that the foreclosure is worth the price you are investing. This is also called performing a real estate market analysis. It allows you to determine whether a property is worthwhile by looking into other comparable investment properties close by. Also, you determine whether the location you are interested in has an investment potential or not.
Finally
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