How to Buy Foreclosed Homes

The sad reality of the real estate market is that many homeowners find themselves unable to pay for their houses and are forced to go through the foreclosure process. For the savvy real estate investor, buying foreclosed homes can be a great investment opportunity as long as the purchaser is up to speed on the process of doing so.

Instructions

Difficulty: Moderately Challenging

1. Find listings of homes that are set for foreclosure through either your real estate broker, online databases or your county's public records office. The amount of available homes fluctuates each day so you need to be vigilant about your tracking system.
2. Hire a lawyer or real estate agent that will help you become familiar with the nuances of foreclosure laws in your state. There might be subtle contract requirements you aren't aware of or disclosure paperwork that you did not know to request. Having a second set of eyes to read over every contract will be a valuable asset during your transaction.
3. Conduct a title check on properties you are interested in. This will tell you if there are any outstanding liens or if the county has condemned the home. Either scenario is salvageable but can require hours of attorney fees and court time.
4. Visit properties on the list you assembled to assess their value. Homes with obvious problems such as a sagging roof or decayed foundation might be more trouble than they're worth.
5. Approach the homeowners to strike a deal on their properties. Oftentimes they would rather avoid the foreclosure process altogether and just sign a contract for less than the home is worth. However, if the homeowners are less than forthcoming about major repairs that are needed, it is in your best interest to back out and let the property go.
6. Pursue the properties at auction if you are unable to negotiate with the homeowners or their lenders. These kinds of auctions move quickly and you might find yourself going over budget if you cannot think rationally. Spend only what you can afford and remember that bidding extraordinary amounts on homes that are being sold "as-is" could be a financial disaster down the line.
7. Fill out all the right paperwork once your bids are accepted and have your lawyer or agent look everything over. Title transfers, addenda and insurance documents should be photocopied and filed with the county as well as with all parties involved.

Tips & Warnings

• Find a home inspector that you trust and consult with him or her throughout the process about any repair costs they might expect for the type of homes you have in mind. You probably won't be able to have a formal inspection before you purchase the homes but you may be able to do an exterior inspection that yields some useful information.
• Buy with your head and not your heart. Buying real estate is usually a very emotional process, but foreclosures are a different type of transaction. Always think clearly.