When it comes to buying property, everybody wants a bargain. However, today's economic climate has made it difficult for budding real estate developers to grow their portfolio. One of the best ways to add value to your portfolio is to buy a foreclosure – a bank owned by a lender due to the previous buyer defaulting on their mortgage. With foreclosures however, there are a few important things to note:
Make Sure You Know What You're Buying
When you buy a home directly from the previous owner, they will be able to give you some help on what work needs done on the home. They may give you some advice on minor repairs that need carried out, weak spots in the roof that have been problematic, or simply the best place to grow plants in the garden.
However, with foreclosures, the property is managed by the lender. This means that they have no previous experience with the home and are simply managing the property until it is sold. As such, they will not be able to offer you any tips or guidance when it comes to renovating the property.
It's important to thoroughly inspect the property prior to buying a foreclosure. This will allow you to make a sound judgment on the expected value of the property. Remember, when buying a foreclosure, you are looking for value for money, not just a cheap purchase!
Ensure the Property is in a Good Neighborhood
While damaged and neglected homes can be renovated, you can't change where the property is situated. It's important to have a good look around the neighborhood to ensure you're buying into a sought after area, as location is one of the main things that tenants and homeowners look for.
The better the neighborhood, the quicker you'll be able to occupy your property. If you're looking to flip the home around and sell for some quick profit, having a good location will cause an influx of prospective buyers to your property. If you're choosing a buy-to-let, a great location will stop your property lying empty – a sure fire way of eating into your profit.
Therefore, remember to study the property at all hours of the day. Even if the area seems reasonable during the day, study the area at night to ensure there is no anti-social behavior going on that could frighten potential occupants away.
Have a Private Inspection Carried Out
If you're looking for a bank loan to fund the mortgage, home inspections are usually required prior to signing on the dotted line. However, if the foreclosure is a particularly good deal and you're able to fund it out-of-pocket, it's important that you have a private inspection carried out on your behalf.
While you will be able to notice any major faults from a distance, you may miss some structural issues that will devalue the property. Unless you are an experienced property developer, or you have significant experience in the construction industry, contracting a qualified inspector to value the property will save you major headaches down the line.
Don't Expect the Same Buying Process
Buying a foreclosure is much different from buying a regular property. Banks have their own internal procedures that they follow when selling a foreclosure, which can seem miles apart from a regular sale.
Typically, banks will have an ongoing real estate agency who they will use for marketing foreclosures. Depending on the number of foreclosures owned by the bank at any one time, the estate agents may not be able to focus entirely on your sale. As such, it's important not to expect the estate agent to give you their undivided attention, which they may do when trying to make a regular sale.
When buying a foreclosure, it's imperative that you have access to the legal help you require. As such, consider contacting your real estate attorney who will be able to offer professional advice, allowing you to make an informed decision on a bank-owned property.