What to look for in a foreclosed home

The first thing you should look for – or look forward to – is weeks and even months of diligent research.  The opportunities in foreclosed homes often fall into the old adage, “If something sounds too good to be true, it usually is.The fact is that some foreclosed homes sell at 30% to 40% below the market rate.  But according to the editor of one real estate investor’s publication, “Most foreclosed homes sell at 5% below market.”

Location

If the foreclosure opportunity you’re looking for is an investment opportunity, then you would be wise to review five years or more of real estate sales history in the area.  Have the homes appreciated sufficiently to make your investment risk worthwhile?It is not an absolute necessity for the property to be in an exclusive neighborhood, but it should be in an economically stable area.   This is not an issue of who is moving in and who is moving out, but rather how much is being paid for the homes changing hands.

One factor that has been introduced not too long ago is the cost of homeowner’s insurance and coverage for windstorms if you’re looking in the Southeast.  You might find some real bargains in Hurricane Lane there, but also find yourself buying a house you can’t afford to insure.You will also be able to locate areas where flood insurance is simply not available any more.

Physical Condition

Look at the situation that contributed to the foreclosure.  Most people lose their grip on their homes after struggling to meet mortgage payments for an extended period of time.  That probably means the home has received little or no maintenance, and the property you’re inspecting may appear to be in poor shape.  If it’s in a quality location however, ignore the condition for the moment, take note of the obvious signs of deterioration, and incorporate rehab costs into your calculations.

Go through the competition

What has to be kept in mind is that just as in any commercial real estate market, you are bidding against professionals.  There are people in most areas who make a living from buying foreclosed properties, cleaning them up and putting them right back on the market.  Professionals operating in that fashion may not be willing to bid up near market price for the neighborhood, but with any well located property you’re not going to walk away with a “steal.” Take a look at recent foreclosure sales in the area to?

Clean Title

You should pay a close look at the condition of the building’s title for any foreclosed property.   Check to see if there are any liens on it other than that of the lender who is selling it.  If you can, determine if the former owner is embroiled in any lawsuits that could conceivably lead to a challenge of the sale and tying up the property.As per theory, any property that reaches the foreclosure stage is going to end up in the market unencumbered.  That means nothing to an attorney who sees opportunity in attempting to delay disbursement of the former owner’s principal asset.  Delay is the operative word here; if you’re going to invest in a property you need to be able to put it to work for you with dispatch.

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