True or false?
Investors should go after foreclosure properties because they can purchase them at a deep discount.
Foreclosure and bank owned properties may be priced at lower than similar fair market properties, but be careful because you may get what you pay for. Buying foreclosure homes requires research and experience. With this in mind, here is a quick tips foreclosure buying guide for purchasing foreclosure and REO bank owned homes.
Real Estate Foreclosure Auctions
]If you are unfamiliar with real estate auctions, the new HGTV show, Flip or Flop, is a good example of what you might expect. During the shows foreclosure auctions, seasoned investors with deep pockets bid against one another to purchase a home, sight unseen, and what lurks on the inside of the home is pretty much a mystery. Trashed homes, funky layouts, and mold issues are all potential unidentified risks which widdle away at an investors potential profits.
Once you take possession, the seller washes their hands of the property. Undisclosed issues or title defects that arise after you take possession are no longer the sellers problem, they become your problem. So, if unbeknownst to you there are people living in the home, it is your responsibility to get rid of them. To minimize the risk of claims or liens on the home, always do a title search in advance on properties that are of interest to you.
Buying Bank Owned Real Estate
When a property does not sell at a foreclosure auction, the financial institution purchases the property and it becomes known as REO or real estate owned. For the novice investor, buying a bank owned REO is the safest way to purchase a foreclosure property.
With the dispassionate financial institution as the seller, the process is slower and longer than an auction or regular transaction, but there are several advantages to purchasing a bank owned REO property. Investors have the opportunity to view the property in advance, perform an inspection, and conduct a title search. This means less risk and more potential profit.
Although many bank owned properties sell close to asking price, there are still opportunities for a good deal. One of the best tips for investors is to watch properties on a daily basis. When an owner-occupant period expires or a price drop occurs, immediately submit your offer. A good real estate agent can assist in the process by setting you up for property alerts. As soon as one of your interested properties drops in price, you are alerted by email. I do it for my buyers all the time. I have personally purchased multiple properties using this technique.
Conclusion
When seeking a great deal, a foreclosure auction could be a good opportunity for the experienced investor, but novice real estate investors may want start with buying lender owned REO homes.
An REO purchase requires experience, research, and is more complex than a regular real estate transaction. Educate yourself on the keys to success. Learn how to submit a competitive offer and most importantly know what your are signing. There are critical things you should know when signing the bank addendum. A great real estate agent can assist you through the entire process.
