How to Buy & Fix Up a Foreclosed Home

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Purchasing a home that has been foreclosed on by the bank can be a great money-saving deal and provide the novice investor with a property that he can flip and sell for a profit. However, for the first-time investor, purchasing a foreclosed home can prove to be a challenge due to the cosmetic or repair work that needs to be done on the property. Here is a comprehensive how-to guide that will provide you with all of the information you need to know to buy and fix up a foreclosed home.

Things You'll Need

  • Realtor
  • Contractor
  • Loan approval or Cash for Sales Price of the Home
  • Buying any bank-owned foreclosed property requires a lot of additional paperwork for most contracts. Because of the legal liability that a bank faces, most banks require that you use the services of a professional licensed and bonded Realtor to prepare all of the required contracts and addendum.

  • A Realtor will have access to recent foreclosure records to show you properties that will meet your needs and interests. Additionally, a Realtor has access to the MLS (multiple listing service), where she can look up property history and information on all of the properties that you are going to view.

  • When viewing FHA- or VA-foreclosed properties, it is important to know the bank's required procedures prior to viewing the homes. Once you find a property that you would like to make an offer on, having the additional paperwork already prepared will ensure that your offer will be at the head of the pack.

  • Once you have found a property that meets your needs, it is important to put in a contract offer on the property right away. Most foreclosed properties spend very little time on the market. Your Realtor should prepare an offer that allows you to back out of the sale should there be something majorly wrong with the property that was not disclosed previously.

  • When reviewing your offer to purchase, it is not uncommon for the bank to take 30 to 60 days to review your proposal. Should your offer be accepted, the next step is to order an independent home inspection.

  • A home inspector will review all of the details about your home and provide a comprehensive report on the areas of the home that require repair. If the report is agreeable to you, you can move forward with the purchase, close escrow and receive your keys.

  • Once you have purchased the foreclosure and received your keys, it's time to begin the repairs. Collect multiple estimates for work from contractors. Use the various bids you receive to have the work done at the lowest cost to you but at the highest quality of work. Ask to see a contractor's portfolio.

  • If you are a handy person, consider making some of the cosmetic repairs on your own. Many smaller details, such as recaulking baseboards, are simple chores that you can do on your own, saving you the expense of labor.

  • Schedule as many contractors as you can for the same day. This will ensure that you can be there to monitor repairs and ask questions. Take the inspection report you received from your independent inspector and make sure that those line items are addressed by your hired contractors.

  • Once the repairs are done, have the inspector come back out and review them to determine whether the work was done to standard.

  • If your goal is to sell the property, get a comparative market analysis done by your Realtor. This will provide you with a selling price for your home, and you will then have an idea of the profit you can expect to gain.

Tips & Warnings

  • Interview at least three Realtors to find someone you can work with.
  • Ask your Realtor for a referral on a home inspector. A good Realtor will have one readily available.
  • If the property you are looking at has noted foundation issues or is in need of massive repairs, think twice about making that investment.

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