One of my greatest challenges when working with Buyers wanting to invest in foreclosures, is helping them to fully understand what "as-is" really means. It means the only negotiation a bank may participate in is price.
It is important for Buyers to not only budget for the amount they may be willing to pay for the home, they should also budget for repairs, plus a possible required Village repair escrow. Some communities have ordinances affording the Municipality to require a repair escrow to insure the Buyer will make repairs before the Village will allow occupancy of the property.
5 Tips to increase your success Buying Foreclosures
Vito Simone, a licensed home improvement contractor reminds us when buying foreclosures (or any distressed property for that matter) it is important to know what you can afford to spend on purchase and renovations. You will need a good renovation lender, a good contractor, a good renovation consultant (HUD Certifies 203k Consultants) and a Realtor who knows how to help you buy foreclosures and other distressed property. Why not have EXPERTS in all these areas to help you?
Tip #1 – Find a good rehab lender
A 203k Expert lender is a loan officer who specializes in FHA 203k and other purchase-rehab financing. You want someone who is expert because you do not want unnecessary delays and you want reliable information. These lenders will also help with referrals to contractors, consultants and Realtors if needed. Sellers are skeptical enough about financing contingencies. So when you are buying foreclosures, use a lender that is a 203k Expert for best results and a realistic loan amount.
Tip #2 – Find a good rehab consultant
A rehab consultant, Certified by HUD as a 203k Consultant, can help you in many ways and is your best advocate. These consultants help review FHA requirements for your project, establish a detailed specifications and a repair estimate. Good consultants will be able to help you negotiate and evaluate contractor bids. A project Feasibility Inspection and Report might cost you $300 or so, but is well worth it and generally will save you many times more than that on your project.
Tip #3 – Obtain realistic rehab cost estimates
Remember a ‘Free Estimate’ is worth what you pay for it. Generally a free cost estimate from a contractor is more likely to be too low or even too high. Too low means you can run out of money. It also means that they may not know FHA requirements or simply did not take enough time to inspect the property for you. Use your 203k Consultant’s Feasibility Inspection and report with the Contractor Bid package to get at least two bids whenever buying foreclosure property.
Tip #4 – Real References
Get two references and call them.
Get one or two addresses where the contractor is currently working and go visit the job site.
Takes notes from your conversation with the references and take notes from your job site visit. Remember, you are just trying to identify two good contractors to give you a bid. Are the job sites organized? Are there empty beer bottles and cigarette butts and trash? The answers might affect you r decision and for some it will not.
Tip #5 – Being Realistic
Staying within your renovation budget, making sure your rehab specifications are clear, detailed (line items) and communications between you, your contractor and your consultant are good so everyone understands the job and the process. Ask about a ‘Rehab Kit’ to help you review the process, what to expect and how to evaluate the people trying to help you.
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