Buying a foreclosed home might be one of the best real estate investments there is. However, the opportunity does not come from the foreclosure itself, but from the right property choice. So, the question is “How can I buy a foreclosed home to make sure to get the best deal?”.
The thing that makes foreclosures so advantageous is that they are, literally, cheap investment properties for sale. As foreclosure is a legal procedure, in which the lender wants to get rid of the property as soon as he/she could. That is exactly why real estate investors seek the opportunity to buy a foreclosed property. What you should know is that the property price is not the only factor that foreclosures profitable. It is really a combination of property price and procedure. There are very important factors that play a major role along with the price. So, here is our answer to the question “How can I buy a foreclosed home that is profitable?”.
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How can I buy a foreclosed home?: Prepare your financing strategy
Well, obviously, you will have to decide on which investment property financing strategy to go with first. If you are applying for a mortgage, then make sure to get a letter of pre-approval from your lender. It takes time to do so; therefore, you will need to start with the procedure ahead of time. However, if you have the cash to pay, then go ahead and do so. The thing about foreclosed homes is that the property seller always prioritizes cash buyers. Paying in cash will get you ahead of other real estate investors who are using other investment property financing strategies. Therefore, you will be able to close the deal as soon as possible.
Keep in mind that foreclosures are cheap investment properties for sale. Therefore, even if you choose to apply for a mortgage, you will not have to borrow much. This means that you get to put less for a down payment as well as have less in monthly payments.
How can I buy a foreclosed home?: Hire a real estate agent
Hiring a real estate agent who is an expert in foreclosed homes for sale is a must. Do not even think about skipping this step in order to save up on the commission. Buying a foreclosed home takes experience and knowledge in the field, and that is why you will need a real estate agent. Even though you will be working with the seller’s agent, it would be best to have your own agent. Get his/her advice on whatever aspects come to your mind. After all, a real estate agent is going to help you with the next two steps.
How can I buy a foreclosed home?: Conduct real estate market analysis
In order to buy a profitable foreclosed home, real estate market analysis is a must. Basically, you will need to compare the property to other similar ones within the same location. Study the local housing market and check if you are buying the property at a good price. Buying a foreclosed home for cheap does not mean that it is worth its price. Sometimes, you will find foreclosed properties that you think are selling for cheap only to find out that they are worth much less in the local housing market.
How can I buy a foreclosed home?: Perform investment property analysis
Performing investment property analysis is another must for a profitable foreclosed home. Your real estate agent should help you with doing this. There is a variety of property evaluating methods that are essential in this case, especially if you are buying a rental property. Start by calculating the capitalization rate, the cash on cash return, the potential rental income, and so on. These are metrics used to determine whether investment properties are positive cash flowing properties or not. The higher rate of return you get, the more profitable the property.
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How can I buy a foreclosed home?: Manage your budget
Buying a cheap property is not all. Of course, you will save up a little, but that does not mean that it will stop there. Foreclosed homes are usually homes in a distressed situation. The repairing costs might be somewhere from a couple of hundred dollars up to a few thousand. If you are lucky enough, you will not have to spend so much money on repairs. However, in order to be on the safe side, inspect the real estate property carefully. Try to estimate the damages and the repair costs. If it’s too much, then it is probably not worth investing this property. We do not mean that every foreclosed home is in a miserable condition. Sometimes, it will only cost you as little as a light bulb.
So, make sure you have done the right calculations for property expenses. After all, it is an investment, and your goal is positive cash flow real estate. A property that is costing you too much in maintenance and repairs is not worthwhile.
How can I buy a foreclosed home?: Contact tradespeople in advance
Now that you know that you will be buying the property as it is, you need to plan the renovation. Try to contact tradespeople as soon as you inspect the foreclosed property. Contact whatever real estate professionals you will need. It might be an electrician, a plumber, or even a cleaning firm. As soon as you close the deal, that is exactly what you are going to be doing. Another tip is to apply some improvements without overspending. That will help increase the value of the property and, as a result, boost your rental income.
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How can I buy a foreclosed home?: Look for one in the right places
Even though hiring a real estate agent will help you find foreclosed homes, it shouldn’t stop there. There are plenty of ways to look for a foreclosure to invest in. There are real estate websites as well as newspapers where you can find adds. You can simply type in “foreclosed homes” on Google, and it will give you a list of real estate websites on which you can find the best real estate investments in the form of foreclosed homes. So, make sure you do not rely on one source only.
To learn more about foreclosed homes in addition to “How can I buy a foreclosed home?”, sign up for Mashvisor. Learn why foreclosures are great investment opportunities and how to spot the best deal on a foreclosed home.