How to Invest in Foreclosures
Buying a home that is in foreclosure, whether the property will be an investment, a vacation getaway, or a place for you to live full time, can be profitable. You can buy a property in foreclosure for a steep bargain of 50 percent or more off the true value. After home improvements, foreclosed properties can often be resold for more money. Uncovering these bargains is the first step, but you must have financial resources or access to financing for the process to run smoothly.
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Instructions
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Obtain third-party service providers to help with the purchase of a foreclosed property. Professional real estate agents often have partnerships or at least relationships with industry service providers, including insurance companies and lenders. Inquire with a real estate agent about reputable firms that provide these services.
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Compare the prices of these providers to find the best value. Contact these firms if you have questions.
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Gain access to a list of service providers, including real estate professionals and appraisers, that are approved by a bank. These firms have met a set of criteria and standards. You can call a lender or contact an industry trade organization, such as the National Association of Realtors in the U.S., for a list of accredited professionals.
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Select an appraiser to assess the value of the foreclosed property you are interested in buying. Banks conduct appraisals on foreclosed properties to learn the most accurate value, and buyers should follow similar procedures.
Financing
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Obtain financing, such as a mortgage from a lending institution, for the foreclosure investment if necessary. Most likely, you must get a separate loan for any remodeling costs, as these expenses are not typically included in a mortgage.
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Beware of negative amortization loans. Delayed interest payments can lead to a higher balance versus making early, routine interest payments.
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Obtain a loan in addition to a mortgage for repairs, if necessary. According to The New York Times, a 203(k) loan is a government-insured product that will cover plumbing and electricity costs in a foreclosed home in the U.S.
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Maintain organized, accessible files with all financial documents relating to the purchase of a foreclosure property investment.
Protection
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Buy title insurance on any foreclosed property. According to MSN Money, this is the safest way to buy a foreclosed home. If a home was wrongly repossessed originally, title insurance protects you from losing the property.
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Improve the condition of the home inside and outside. Remodeling a home increases the value of the investment when it's time to resell the property. Many foreclosed homes need repair, and banks may not extend home loans to potential owners before improvements are made, according to MSN Money.
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Buy a property that has been foreclosed on by a bank. According to MSN Money, most buyers of foreclosed homes make the deal with banks that performed the foreclosure.
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Consult with a real estate agent to uncover investment opportunities. Most bank-owned properties become listed with licensed real estate agents, according to MSN Money.
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Tips & Warnings
Gaining approval for loans to make high-end home improvements is more likely if the foreclosed property is in an upscale area.
Interest on a 203(k) loan for home improvements can be higher versus interest rates on more-traditional loans.
References
Resources
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