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Tips for Buying a Foreclosure

by Michele Lerner

Investors and other buyers interested in snapping up a bargain by buying a foreclosure need to be aware that foreclosure purchases are not always as easy as they seem. There's a reason foreclosured properties for sale at a discounted price.

First, foreclosures are always sold “as is”, so the buyer needs to be ready to take on a potentially damaged or dismal property. Of course, some foreclosures are in excellent shape, but others will have holes in the walls, no appliances and sometimes even missing kitchen cabinets.

Second, foreclosures are often priced artificially low by the bank which now owns the property in order to generate multiple competing offers. That doesn’t mean you can’t get a bargain, but it means you need to be ready with a cash offer or preapproved financing in order to move quickly. Best of all is a preapproval letter from the lender who owns the foreclosure you want to buy.

Foreclosure buyers need to work closely with a knowledgeable real estate agent who understands the local market very well and can recognize the value in a property. Have your agent generate a list of recent sales in the area where you are looking and make sure you look at active listings, too, so you get a good feel for the going rate for similar homes to the one you want to buy.

When you have identified a home, find out as much as you can about the property history so you know what it sold for when it last came on the market and can evaluate the current value along with the price you think the bank wants.

Do arrange for a home inspection so that you know what you are buying, but don’t expect the bank to make any improvements, particularly not cosmetic ones. Sometimes, if a home has structural defects or a plumbing problem which could cause long-term damage, the bank will make repairs because otherwise the home cannot be sold.

Make sure you or your agent finds out how many offers are being made on a property. If there are multiple offers and you are a serious buyer you may need to increase your down payment and shorten the inspection period in order to make your offer more appealing. Of course, an all-cash offer will be most attractive, but not all buyers can manage that financial feat.


Michele Lerner, a real estate expert and freelance writer with 20 years of experience, is the author of “HOMEBUYING: Tough Times, First Time, Any Time”.

 

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