Buy A Foreclosure! Here Are Some Tips For Success!
Do you want to buy a foreclosure? Here are some tips for success!
1. Pick the right Realtor®. When you are picking the right Realtor®, look for some one you can work with. Meet with them and make sure that you are comfortable with this professional. Look for experience in selling foreclosures or REO properties. REO stands for real estate owned, it is an industry term but one you want to be familiar with. Why should they have experience selling foreclosures? They know what asset managers are looking for in offers and they can guide you to the best deals available out there. Also, this is an industry specialty and they speak their own language, they have their own terms and they typically know each other and this can go along way to helping you find and obtain the best deals out there!
2. Pick the right area. When you are considering what area to start looking in you want to look for some certain characteristics: Look for an area that has been dominated by investor activity in the past, this will be a target rich environment for you and if you need to rent the property you can quickly because this is an area that is accustomed to rental activity. Also, in an area that has been dominated by investor activity in the past, typically the properties have not been maintained well and you have a better chance of picking up a fixer for a great price.
3. Do your research. If you pick the right Realtor®, he or she will be able to advise you and help you with research, but you want to be able to do your own as well. If you are buying to fix and flip, research success stories and failures. You should try whenever possible to learn from someone else's mistakes. Making mistakes in this business can be very expensive and it can end your investing career before it gets started!
4. Have your team in place. You will need a contractor, unless you have extensive construction experience, to inspect, advise and bid your projects for you. Make sure you have one that you trust and one that is dedicated to your success. Contractors can get overloaded with work, even in this economy, so it might not be a bad idea to have a couple of back up contractors available. One hint, if your contractors know you have others available, this can be a good thing for you in terms of their performance. You will need a home inspector, your Realtor® can recommend a few but you will need to interview them and make sure they are clear on what you are looking for. One note here, make sure that the inspector understands that most lenders only allow a very small window of time, sometimes as little as 24 hours for a buyer to inspect and accept the property. Make sure your inspector and contractor can move that quickly for you.
5. Buy it right and protect yourself. When investing in real estate, you make your return going in, when you offer and negotiate the right acquisition price. You will need to protect yourself as well. When you are constructing your budget to fix up your foreclosure, you need to build in a contingency amount typically 10% to 15% of the acquisition price. A contingency amount is an amount that you build into your budget in case something is discovered that you could not have known about or was missed during your inspections. You might lift the carpet and find a cracked slab, pull the siding off the exterior wall and find dry rot or extensive termite damage, this will help to cover it. If nothing unexpected is found, you just made that much more on your investment, congratulations! If you are considering holding on to the property, consider purchasing a home owner warranty in case something needs repair after your remodel is complete.
6. Have your finances ready now. If you are fortunate enough to have the resources to pay all cash great! Even if this is the case, get all your funds together from all the accounts they are in and put them in one account that is totally liquid. Here is the deal, most lenders have a policy that if you are going to put in an all cash offer they want the escrow closed in 14 days from acceptance. If you have all your cash tied up in accounts that have to be liquidated, wired around and tons of arrangements made to consolidate the funds you are not a cash buyer really. So get it all together before you put an offer in so you can close on time and not risk the seller canceling and keeping your earnest money deposit because you cannot perform. If you are not all cash, you need financing and you should have it ready to go right away as well. Hard money is one option, one that many flippers use because they want to close quick, very few questions and less red tape. Hard money can be expensive and hard money lenders can run low on funds to lend, you should get pre-approved with at least three sources so you can have a backup just in case. Most important, if you are using financing, make sure that you put in an offer that reflects the financing, don't try to pull the "wool over the eyes" of the seller, this is not going to work and could land you in court! One hint, if you are going to use financing, put a large amount down, write an aggressive offer and offer to close sooner than the other buyers to increase your chances of getting your offer accepted. If you decide to hold on to the property and you want to pull your cash out, you may have to wait up to 180 days to refinance the property, check with your lender, they can advise you as these guidelines are changing all the time!
7. Be ready to pounce. You should, whenever possible, have everything needed lined up so you are ready to move right away should an opportunity come available. Please remember, this is a business where you have a number of competitors that are often times more experienced and better funded than you are. You have to be ready to go quickly!
8. Sooner is better. When you are putting together a strategy to successfully purchase foreclosures, remember who the seller is and what their motivation is. This foreclosure is the result of a borrower failing to pay their mortgage and this is already a loss for the seller before it is ever even listed. Once it is listed and on the market, the seller wants it gone for the highest sales price possible as fast as possible and they do not typically want to make any repairs that are not a hazard to the public. So, knowing this, you should put in an aggressive offer, ask for as few concessions and repairs as possible and offer to close as quickly as you can. This has been a winning combination for a number of successful buyers of foreclosures that have fixed up the properties and made a large profit for themselves and their families.
If you are looking to invest here in North San Diego County, call me today 760-802-9500!