Should You Invest In Foreclosures? - Not all foreclosed properties are available at discount.
Do your research and do your home work when looking at forclosures. Know the are you are buying in, find out what is a reasonable price for a similar home. Look at the property and bring some one else with you to be an objective observer. Write out lists of possible repairs, if you see anything suspicious have a specilaist do an inspection.
Even though there has been a high amount of foreclosures in the nation, they have been touted as "easy money" by real estate investors trying to sell seminars more than real estate. Regardless of where the hype came from the demand is still perhaps more than the supply. For this reason banks have been able to sell their homes more and more at "market value." For instance, Freddie Mac through HomeSteps will actually renovate the homes themselves in order to make them available for full market value. Their goal is to sell them to "end users," or people who plan on buying them as primary residences. In fact, HUD will only sell their homes to end users first, and then open the auction up to investors. Because of this, HUD auctions are flooded with investors, getting a bid in only after end users get a shot at them.
In most of the country's "hot" real estate markets, competition for foreclosures and stagnation of pricing has made the spreads on foreclosure rehabs and flips significantly lower than before, thereby increasing the risks associated with buying foreclosures. Consider targeting a market which may be slightly off the beaten path where demand is increasing as partof your straegy, to help you diversify the risks of buying foreclosures in hot markets.
Doing your "due dilligence" is key. It's important to have a prelim title report done on the subject property(either by you or a 3rd party) to make sure there are no clouds on title.
The key to investing in forclosures is to start early. Contact you local title company and have lists of NOD's emailed to you. This will give you a starter list of homes that are facing forclosure. If you have issues getting the list then contact a Real Estate professional you trust. They can get one for you.
Typically, competiton for forclosures is very high. Be sure to act quickly if you see a good opportunity.
There are high risks and hard work involved with buying foreclosure homes. A foreclosure property buyer needs to spend a great deal of time to find homes that are in foreclosure and to go through public records to make sure that the foreclosed properties do not have unexpected liens, such as tax liens, which could drive up the purchase price. Beginners should consider buying bank owned properties, which are often free from the usual risks associated with foreclosure homes.
Without a doubt to be successful in investing in foreclosures the investor must get to the homeowner early. Many serious foreclosure investors drive through otherwise well kept neighborhoods looking for homes in an unkept condition. This can often (but of course not always) be a clue that the property is close to going into forclosure.
You can use a simple formula to make sure that you have some cash flow or make money if buying a rehab project. You can take your after repaired value times 70% less repairs. (ARV x .70)-R = maximum offer. Obviously you can sway a bit from this depending on the area but this rule of thumb is used by professional real estate investors across the nation. You may want to contact remodelers in your area to gain an understanding of what repairs costs. This formula takes into consideration your holding cost until you find a renter or buyer.
Diversify your Real Estate Portfolio - Concentrating your properties into one certain region can actually put you at risk to mother nature. Earthquakes, Floods, Fires can take all your properties and leave you to answer to the banks while asking your insurance company for help. After you have acquired many properties think about spreading your properties to other States or Cities within your state. Example, Have few properties in San Diego, CA and thinking about purchasing another. Well why not purchase a property in Big Bear, CA or Lake Tahoe, CA area. Phoenix, AZ is another hot real estate area and equity is rising in that desert land.
On top of risk from natural disasters, overinvesting in a single market may expose you to microeconomic factors, such as a reliance on specific industries or even specific companies in their capacity as employers for your tenants and buyers. In today's dynamic business markets, with large scale outsourcing and drastic changes in hiring and operating strategy amongst major employers, as a savvy investor you would be best advised to increasingly diversify your real estate portfolio to include different regions, and you might consider refinancing some of your current holdings and taking cash out to facilitate diversification into new real estate markets across the USA and in hot international markets.
You can also diversify your Real Estate Portfolio by investing in different types of properties. You may want to have some longer term investment properties, such as rental properties. You can also invest in mid term properties. These would be properties that you buy and keep for a year or two then sell because of the increased market value. There are also short term property investments such as rehab projects. Where you buy a distressed property, rehabilitate it and then sell it.
