Many people dream of buying foreclosed properties to generate a monthly income and build their assets. There are a few ways investors can approach foreclosure investing. Some investors purchase foreclosure properties, make some improvements and rent the units, which build their monthly cash flows. Other investors “flip” foreclosed properties, with the objective of earning a quick profit.
Some foreclosure investors who flip properties operate as “wholesalers.” Wholesalers purchase foreclosure homes, and while still under the Contract to Purchase, sell the contract to a “retail” foreclosure investor for a fee. Some foreclosure investors amass substantial profits operating strictly as wholesalers.
Often, they earn smaller profits, but with less risk. Many wholesalers have multiple deals and contracts with numerous “retail” foreclosure investors, simultaneously.
Flipping foreclosed properties as a retail strategy involves purchasing foreclosure properties, which sell significantly below the market value of similar homes. Often, foreclosure investors must invest some money in renovating the properties. Usually, the “exit strategy” requires the investor to sell a property after acquiring the asset and completing the necessary improvement to maximize resale value.
Retail foreclosure investors who flip foreclosed properties have an exit strategy that requires them to renovate the homes and sell them to homebuyers outright for cash, or buyers who obtain their own mortgages. Some foreclosure investors offer seller financing to homebuyers, especially in housing markets where credit standards make it difficult to obtain home mortgages.
How to Buy Foreclosures Properties
Investors can purchase, and flip foreclosed properties at any point in the foreclosure process: pre-foreclosure, foreclosure auction or bank owned foreclosures. Many seasoned foreclosed homes investors buy directly from homeowners in the pre-foreclosure stage and avoid a lot of the competition for these properties.
The key to flipping foreclosed properties for cash? Buy the property “right,” upfront. This means search foreclosure listings for foreclosed properties, which sell for a minimum of 30% below the appraised market value. This buying strategy requires having knowledge about the business of foreclosure homes investing and understanding of how to find these houses.
When you find the a potential candidate, move quickly because other foreclosure investors have likely targeted the same property. In addition, foreclosure investors need access to cash to close deals, and the capital to finance renovations of foreclosed properties.
When investing in HUD foreclosures, remember that owner occupants have the first shot at these homes for ten days. After the ten-day exclusive listing period expires, investors can place bids on HUD foreclosures.
Acquire the Foreclosure Knowledge and Information
Flipping foreclosed properties is risky business. Learn as much as you can about the foreclosure process in your state, especially laws pertaining to foreclosure investors. The last thing you want to occur is to have a deal voided, or face a stiff fine, for not following foreclosure laws.
Gather as much information as you can about any foreclosed property you are interested in investing in and flipping for profit. Go to the county courthouse, obtain a copy of the tax record, which has data on the size of the home, assessed value, and land value. Ask your real estate agent to pull comparables showingg recent sale activities for similar units in the neighborhood.
Currently, most real estate appraisers work with comparables from the last 90 days.
If you can gain access to the foreclosed home, perform a thorough home inspection. Most of the time, you will not have the flexibility to make the agreement subject to a home inspection. Therefore, you will have to rely on your experience.
Many foreclosed properties are “as is” sales. This means you can have major repairs on your hands, especially if vandalism has occurred or major systems need substantial repairs or even replacement.
Prepare a Plan for Foreclosure Properties Investing
Once you have acquired the knowledge about researching, buying and renovating foreclosed properties, create a business plan for flipping foreclosed homes. A basic plan should include your strategy, from start to finish, including purchasing, financing and flipping foreclosed properties. You should have an exit plan before you buy the property.
As part of your business plan, put together a team because you will need to move quickly once you identify foreclosed properties you are interested in purchasing. Your foreclosed properties team should include a real estate agent, home inspector, remodeling contractor, real estate attorney and tax accountant.