Investing in foreclosures can be one of the best ways to maximize profits in the real estate business. For starters, foreclosures are usually sold under market value, giving the potential investor the opportunity to enter into an immediate equity position. Additionally foreclosures are often held by banks which may be ready to concede special financing terms just to get the homes off their books. But with the foreclosure of millions of homes over the past several years, the foreclosure market of today presents challenges that buying foreclosures in previous years didn’t. Here we will take a look at some of those challenges, and what can be done to mitigate them.
Challenge #1 – Buying in the Middle of a Foreclosure Tsunami
One of the biggest challenges to foreclosure investors is to know exactly where to invest your money, which neighborhoods are best. If the neighborhood you choose is undergoing a tidal wave of additional foreclosures, property values may have not yet finished decreasing when you purchase. It is advisable that you check the public records, and search homes in the neighborhood online to see if there are a lot of homes in foreclosure or pre-foreclosure.
Challenge #2 – Buying into a Nightmare
It is no surprise that many foreclosed homes are in bad shape. Many homeowners lived in the homes for years without making payments, often times because they simply didn’t have the money. This could mean that there was no money or desire to keep the home in good condition. Investors should be realistic about their own finances, how much they are willing to invest in order to fix up a home. Once again, investigating a home before purchase is instrumental. Talk to neighbors, do a walkthrough of the home, and conduct a home inspection if possible. The more information you have about the home the better for your decision of whether or not to buy and how much to pay.
Challenge #3 – Financing
Though many banks are willing to work out creative financing methods to help you take a problem home off their hands, finding financing for a foreclosure can still be incredibly difficult. Lenders are lending less than ever, as loan qualification requirements have gone through the roof. Before committing to a buying a foreclosure, take a look online for creative financing options. Also, you may want to consult a local hard money lender to see what kinds of terms they will offer you. Hard money lenders are usually more interested in the feel of the loan than specifics like your credit score. If you show them a way they can put their money to work, they are usually willing to listen.
Challenge #4 – Location, Location, Location
This last point serves as a catch-all for all kind of location issues which purchasing a foreclosure may present. Put simply: It is best to invest close to home or close to the office. Though significant foreclosure activity may happen relatively close to you – say a 1 hour drive away from your residence – it is advisable that you look for something as close to home as possible. Whether you plan to rent or flip the home, you will need to practice constant vigilance over the home’s restoration and sales or rental process. No one feels like driving an extra hour (or more) every day to check up on contractors. Buy close to home or office.