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One of the most under-appreciated methods of buying affordable real estate is purchasing foreclosed real estate. These are typically homes where the previous owner has defaulted on the mortgage and have had their property repossessed.
Despite often being harder to find – after all, the majority of home buyers do not end up in foreclosure – foreclosed real estate is often readily available for purchase. So, if you are prepared to take advantage of it, you may be able to secure a great deal on an investment property.
So, in order to help you assess and purchase foreclosed real estate, here are five steps you should take.
But first, before you begin buying foreclosed real estate, you need to get a clear picture of which lenders are willing to lend on these properties. So, in order to get started, click the link below to book a free strategy call with our team here at LendCity today.
Get a Pre-Approval
One of the first things you should do when purchasing real estate is seek out a pre-approval from a qualified and experienced lender. This allows you to know both the maximum purchase price you can afford for a property and secure the lowest available interest rate that you can qualify for and lock it in for the next 90 days. This is great because it gives you a clear picture of what you can afford to do before you begin property hunting.
Understand Your Options
The foreclosure market appears in a variety of forms. This means before you can begin buying real estate, you need to understand what types of foreclosure deals exist.
One of the first types of foreclosure deals you should look for are pre-foreclosure deals. These are properties that have not actually been repossessed yet but are likely going to be soon because the property owner has defaulted on their mortgage.
In this instance, the property owner may try to perform a short sale and sell the property at a discounted rate in order to avoid going into foreclosure. However, if they attempt to sell the property at too low of a price, the lender may block the sale.
The traditional method of buying foreclosed real estate is through auction. These auctions allow for buyers to place bids on a piece of foreclosed real estate. These auctions are typically run by third-party trustees that work for banks or other lenders in order to help them quickly sell their repossessed properties.
When attending an auction, just be careful to know your budget ahead of time so you do not over-bid on a property that you cannot actually afford to buy.
Real Estate Owned (REO) Properties
REO properties are pieces of real estate that have been taken over by the lender and have not been sold at a foreclosure auction. Often, lenders will hire realtors to list these properties and assist in having them sold. You can usually identify these properties by reading the MLS (Multiple Listing Service) listing for the property.
Government-owned foreclosed real estate is very similar to REO properties, but instead of being owned by the lender, the property is owned by the government. These are usually the result of homeowners defaulting on government-insured mortgage loans.
Assess the Risks of Purchasing the Property
Buying a piece of foreclosed real estate can often come with some additional risks and setbacks that you would not face during a traditional real estate purchase. Here are some of the most common disadvantages you may face when buying these properties.
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Problems With the Property
When you are buying foreclosed real estate, you are agreeing to buy the property “as-is.” This means if the property is in poor condition, you will not be able to put a condition on the purchase that the needed repairs will be completed before you take over the title on the property.
These problems can range from mold, mildew, structural damage, damaged drywall, or one or more of any of the other issues you could find in a home.
When buying foreclosed real estate, you may find yourself taking over a property that comes with hidden costs. These can include unpaid back taxes on the property, liens, or unexpected renovation costs. These can massively increase the total amount you need to pay for the property before you can begin using it as an investment.
The process of buying foreclosed real estate often comes with additional hurdles that slow down the process. This can lead to a slower purchase process and a later closing date in order to ensure all of the paperwork is properly managed.
Get a Professional Opinion
Before you purchase the property, take the time to ensure that you consult the professionals to make sure the property is worth your while. Three of the professionals you may want to consult are:
When you are buying foreclosed real estate, you should strongly consider having the property inspected by a professional home inspector. This way you can be certain that any hidden problems with the property are found and addressed and the asking price for the property is reasonable for the current condition of the property.
However, it is important to note you will not be able to do this if you are buying a foreclosed property at an auction.
Not only should your realtor have the connections to help you find foreclosed real estate to buy, but they should also know enough about the market to help you make an informed decision regarding whether or not you should follow through on the purchase.
Real Estate Lawyer
Real estate lawyers are some of the most valuable people when you are buying a property of any sort. They can help you go over all of the paperwork and make sure everything is in order for the purpose. They may also be able to uncover certain hidden costs before you make the purchase, helping you make a more informed decision.
Buy The Property (If It Is a Worthwhile Investment)
After you have taken the time to get pre-approved, find the property, assess the risks, and consult your real estate professionals, it is time to buy. That is, if the property is worth purchasing. If not, then you can always go back out onto the market and hunt for a newer, better deal.
So, if you are ready to take the first step and get a pre-approval for your next real estate deal today, come visit us at LendCity. We can get you paired up with one of our experienced lenders quickly and with no hassle. Just give us a call at 519-960-0370 or visit us online at LendCity.ca to get started today. Alternatively, click the link below to book a free strategy call to discuss financing foreclosed real estate deals today.