Questions of foreclosure and homeownership generally fuel much-heated debate among politicians-especially against foreclosure-but what they may not know is that there is an entire industry that thrives on the acquisition, improvement and sale of foreclosed homes. Foreclosure, in itself, is no easy subject, but you don't have to be a finance whiz to get a good foreclosure deal. To seize a good opportunity, you just need to pay attention to a few elements, be prepared and show some cash-the right amount of cash, I would add-when the time is perfect. To get a good deal on a foreclosure, stay away from bidding wars, do your research beforehand, make a bigger deposit, and don't bid too low on just-listed properties. Check out other foreclosure tips below!
Make a Bigger Deposit
I recently talked to a real estate investor who told me that her only advantage when going into a foreclosure deal is to show some good cash. In other words, when the opportunity is right, she always puts up a bigger deposit, thus outbidding other investors. The thing is, banks and other lenders involved in foreclosures want to sell to investors with deep pockets, preferably those who can dole out a substantial portion of the sale price upfront. So, your best bet is to have some financial war chest when considering foreclosure deals. Remember that banks want a straightforward and fast deal, so they can put a lid on losses they have been incurring since the homeowner defaulted on his or her mortgage.
Research, Research, and Research
Research foreclosed properties in which you might be interested. Performing this type of investigation beforehand can help you land a good deal because you would have had the time to analyze the pros and cons of each property way before other investors. When doing research, be ready to seize on a bargain. If you do it right, and know the property in and out, you stand a better chance of outmaneuvering the bigger players, say, the deep-pocketed vulture buyers. To increase your chances, drive through neighborhoods; write down the addresses of properties that seem to be in hygienic, structural, or architectural disarray; talk to the neighbors; check public records to match addresses with phone numbers and call those numbers; and contact the municipality for more information about that particular neighborhood. Buy foreclosed homes the right way. These efforts might take you some time, but think of it as a physical down payment you are making to seize your next big deal.
Don't Bid Too Low on Recently Listed Properties
Give a reasonable price when you spot just-listed foreclosure deals. Remember, the bank wants to close quickly and easily, but there are certain price ranges it would not cross. If the institution waited so long before putting the property up for sale, it wouldn't rush now to sell in one or two days or weeks. Your best bet is to bid an amount that is reasonable and in sync with your budget-or pre-approval letter, if you are financing the purchase. A bid that is too low tells the bank that you are either not committed to the property or that you have not done your homework and are not familiar with property prices in the neighborhood. Think of it: if you knew the price ranges, you would not bid that low-unless, of course, the house has substantial damages and, therefore, would need significant repairs to bring it up to proper living standards.
Stay Away From Bidding Contests
Real estate agents sometimes list bank-owned properties for amounts way below their true values. They do that to lure several potential buyers, some of whom become emotionally attached to a property after visiting it, showing it to the kids and receiving compliments from their spouses and other family members. Agents then try to subtly initiate bidding wars if they know that, say, seven or 10 prospective buyers are interested in the same property.
If you do your homework and compare property prices beforehand, you can avoid the trick and may not even bid for the property. Participating in a bidding war may put some strains on your budget because you could end up paying more than you anticipated.
Get Pre-Approved or Approved-If You Can
Remember the whole point about making a bigger deposit and presenting a clean offer? Well, if you have deep pockets, you are good to go. But if you don't, you should line up financing before you hop on the foreclosure deal bandwagon. Talk to your bank or a lending institution with which you have worked in the past. Tell the underwriting agent what you intend to do with the money, how much you need, and the neighborhood in which you plan to purchase the dwelling. Don't forget to mention why you are buying the property, be it to use it as a second residence, an investment property, or a primary home. The underwriter would check your credit history and employment patterns, among other things, before approving or denying your loan pre-qualification request.
Don't be like those real estate investors who wrestle with financing and foreclosure deal search. When you buy a foreclosed home take matters into your own hands and do your homework before searching for properties. Also, talk to your bank to have some cash ready before making your bid, and whatever happens, never engage in a bidding war. The bottom line is: if you do it right, you can grab pretty interesting foreclosure deals and make or save some money in the long term.