Three Tips for Buying Foreclosures and Distressed Properties

by on Real Estate Investing

Model Foreclosed Homes

The foreclosure crisis has peaked, and now the nation, by and large, is in recovery mode. The nation’s foreclosure rate has dropped significantly since its 2010 peak, and is now at levels not seen since 2008 (and as early as 2006 in some parts of the country).

With that said, there are plenty of foreclosure homes available for purchase all throughout the country. These distressed properties abound, from suburban communities to big-city metro areas, and can be had with steep discounts off their fair market value.

The trick is to understand how buying foreclosures is different from buying a traditional, non-foreclosed home.

Here are three tips for buying foreclosures and getting a great deal for your investment.

Understand the ‘As-Is’ Nature of Foreclosures

When you go to buy a traditional home, you often base your decision on inspections. If there is anything that needs to be done to the home, either systemically, cosmetically, or structurally, you can negotiate for the homeowners to have that work done before you buy.

That isn’t the case with foreclosures. Most foreclosures are sold ‘as-is’, meaning whatever condition they are when you buy is the condition you get. This means that a bit of handiwork is usually required to make the home livable. This can range from simply replacing fixtures to serious electrical, plumbing, and carpentry work.

Understand that you’ll probably have to perform some repairs. Even with this factored into the price, though, you’ll still get a great deal when you buy.

Pay Attention to the Timeline

One thing that foreclosures and traditional homes have in common is this: the timeline matters.

In other words, how long a home has been on the market can play a big role in negotiating for a better price. This is especially true for foreclosures, since they may have already been to auction but didn’t sell. In this case, they are called real estate-owned (REO) homes.

REO homes can be had for even bigger discounts because they are doing nothing for the bank but languishing on their balance sheets as unperforming assets. You can typically get homes such as these for less than you would a normal foreclosure at a foreclosure auction. You just have to be willing to negotiate with the bank.

Cash Offers Increase Your Chances of Success

Finally, when buying foreclosures, cash offers greatly increase the chances of successfully buying a foreclosure.

In many foreclosure auctions, cash is the only way to go. And even if you can pay in other ways, a bank is more likely to sell to you if you can pay in cash than if you have to finance the purchase.

Understand the preferred payment options for a foreclosure auction before you go, and make sure you have all the proper documentation in order to successfully submit a bid. Also, talk with the bank to see what terms they prefer for their foreclosures, to ensure you can make a deal with them. They are largely willing to work with prospective buyers to reach a suitable accommodation.

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