If you’re the ambitious type who’s looking to start investing in real estate, investing in foreclosed properties could be a great idea. But before you jump in, you should consider the time, energy, and effort these investments require. Here are several things to consider before buying a foreclosure for the first time.
If you pick up a foreclosure that's been neglected, has a poor infrastructure, or maybe just needs some heavy cosmetic work, you’ll have a lot to do before you can re-sell. And if you’re not well-versed in home improvement DIY, this could become a time-consuming and expensive endeavor. Get quotes on the necessary work before you sign off on the purchase to make sure you really have the money needed to flip or rent the house.
Foreclosure laws differ by state, so do your homework to make sure you understand the rules and regulations that govern purchases. The last thing you want is to invest in a foreclosure only to find you’re not in compliance. Check your state’s Attorney General website for more information.
Property taxes, homeowners insurance, mortgage payments, and maintenance all eat away at potential profits. This is especially true if you have to sit on the home for a while as you make repairs and wait for a buyer or renter. Depending on the market, it could take months (or even years) before you experience positive cash flow.
If the house you purchase doesn’t have a clean title, you may not be able to sell it without paying off outstanding liens against the property. Your best bet is to contact a professional title company or real estate attorney to perform a title search and verify that the title is clean. There is an expense involved, but it’s well worth it in the long run.
Always invest in a professional home inspection before purchasing a foreclosure. Even if you have a solid eye for spotting necessary home repairs, a professional inspector can uncover less-obvious problems with the electrical, plumbing, or foundation. Check the American Society of Home Inspectors website for help.
An REO, which stands for “real estate-owned,” refers to a property that the bank officially owns. This is slightly different from a foreclosure, which must go through a foreclosure auction before reverting to bank ownership. Since most banks and financial institutions aren’t interested in managing real estate, they’re often willing to negotiate a lower selling price for REO properties to recoup some of their original investment.
To discover how Civic Financial Services can help with your real estate investment financing needs, click here to get in touch with us or call (877) 472-4842.
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