A real estate investor that wants to get a good return on investment should consider buying a multi family home for investment. To get a bargain, they should look for multi family foreclosures. Investors can enjoy good real estate deals since such properties are usually sold for much less than the prevailing market rates.
So, What Is a Foreclosed Home?
When you take out a mortgage for buying a rental property, your home is considered the collateral. If you cannot make your payments, the lender will repossess the property in a process referred to as foreclosure. In some jurisdictions, foreclosure is a very lengthy affair that could take years, while in others it can take just a few months.
Types of Foreclosed Homes
There are basically two types of multi family foreclosures for sale: real estate owned (REO) properties (also called bank owned foreclosures) and foreclosures. Both REO and foreclosed homes are in the possession of the lender, which is usually a bank. The main difference between the two types is what stage the multi family real estate foreclosure is in.
When the property owner stops making payments, the mortgage lender seizes the investment property and it becomes a foreclosure. The property then goes to an auction where the lender attempts to recoup their money.
If the property fails to sell, it then becomes a real estate or a bank owned home. The lender will then try to sell the home through REO real estate agents.
Why You Should Buy Multi Family Foreclosures: 4 Benefits
Here are some of the benefits of buying a foreclosed home that is also a multi family property:
- Bargain prices – When a bank is selling multi family foreclosures, they are usually seeking to dispose of the property quickly in order to recoup their money. Therefore, they are likely to sell at a low price in order to get multiple offers. So this is a great way to find cheap multi family homes!
- Lower mortgage payments – Purchasing multi family foreclosures at a low price will mean a lower monthly mortgage payment.
- Possibility of a 203k loan – Many people don’t realize that multi family foreclosures could be eligible for a rehabilitation loan package. This means that buyers investing in real estate don’t have to worry about raising funds for repair or renovation.
- Equity accumulation – One major advantage of buying a foreclosure is the equity the investment property can accumulate after buying low. Whenever you purchase a multi family real estate investment below market value, you are likely to make a handsome return on investment when you sell.
How to Buy Multi Family Foreclosures
If you’re looking to take advantage of those 4 benefits, here’s how to buy a multi family foreclosed home:
1. Get Preapproved
Before you begin thinking of foreclosure investing, you need to establish if you can get a mortgage. If you are planning to take out a loan for the purchase, you must prequalify and get preapproval first.
Preapproval will help position you as a serious buyer and real estate investor. However, this does not mean that you must get the loan from the same bank selling the property. The lender sees the mortgage and the foreclosure as totally separate transactions. Therefore, it will not be advantageous or any easier getting a mortgage from the same lender unless their terms and rates are very favorable.
Related: The Best Mortgage Options for Rental Properties
2. Search for Multi Family Foreclosed Homes
If you are new to buying multi family foreclosures, you might not know how to find multi family properties for sale. This is why you should work with a real estate agent that is familiar with REOs. An agent will save you lots of money, time, and frustration. Many real estate agents have years of experience helping people find foreclosed homes. As a result, they are able to show you where to find multi family foreclosures that meet your criteria. You can also seek out the help of a mortgage broker. However, before hiring anyone, be sure to do your due diligence. Look for reviews, testimonials, and certifications that vouch for their experience and knowledge.
You can also find foreclosure and auction listings at your local city hall and in local newspapers. Real estate websites such as Mashvisor also have foreclosure listings, which can be narrowed down using a filter to find multi family foreclosures. Using Mashvisor’s tools, you can also analyze the return on investment of the property to ensure it is a smart choice.
3. Purchase the Multi Family Foreclosure
Whether you negotiate for an REO or bid at an auction, the third step is to take action. This is where you place an offer on an investment property that is within your budget. Make sure your budget makes provision for property taxes, professional property management, insurance, closing costs, repairs, renovations, and inspections. If you spend more than you can afford when purchasing the foreclosure, you might not have anything left to cover other costs.
Related: How to Budget for an Investment Property and Cash Flow
4. Pay for an Inspection
After making an offer on the foreclosed property, you will have a duration when you can arrange for inspections depending on the stage in which you’re buying the property. Where possible, it would even be advisable to inspect the investment property first before making an offer. Generally, inspections could cost you anything from $400 to $700 depending on what you need. For multi family foreclosures, you will want to check everything including a radon and termite check, as well as a water line and sewer assessment. It is always safer to know as much as possible about the state of the home.
5. Repair, Renovate and Rent Out
Once you complete the buying process, it is time to work. Most multi family foreclosures will require comprehensive renovations and repairs. The work can be anything from plumbing repairs and electrical upgrades to full-scale foundation work and roof replacements. The home inspection will show you the amount of work that needs to be done. Once the job of fixing up is done, it’s time to rent out all of the units and start earning rental income.
Learn More: How to Buy a Foreclosure in 5 Easy Steps
Conclusion
So, is buying foreclosed multi family homes for sale a good idea? It all depends on a wide range of factors, including your risk tolerance, ability to move quickly, and financing. Weigh the pros and cons and decide whether this is the right move for you.
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