5 Steps to Wise Foreclosed Homes Investing

When it comes to investing in foreclosed homes, short sales and other types of residential real estate, investors are always trying to find the right reasons to purchase properties. At this time, many people are jumping into the, market because it’s obvious that the housing market is in an uptrend.

Homes prices are increasing and the inventory of new and existing homes cannot keep up with the demand. In addition, the rentsare also on the increase.

Here are some considerations if you intend to invest in residential real estate:

1) Speculation or investing

It pays to have a conservative approach to building your real estate portfolio. If you buy property with the hope that it appreciates in value—it’s called speculation. However, if you purchase a house because your due diligence showed on average homes in the neighborhood goes up in vales or it has a positive cash flow, you are investing. Treat potential appreciation as “icing on the cake.” Investing is the smart way to build a real estate portfolio.

2) Start with residential properties

Some beginning investors make the mistake of buying other types of property, such as commercial storefronts, mixed-use building or offices. Learning how to invest in residential real estate—single-family homes, condominiums or townhomes before venturing off in other properties types.

Then, if you wish, move up two, three or four-unit properties, which are still considered “residential.” You will find it much easier to purchase, finance, renovate and manage residential units compared to other types of properties.

3) Investigate everything

Get into the habit of verifying everything you read or hear. Realize that most of the people you come in contact with have their own beliefs and motivations, which may not fully align with your intentions and investment goals.

Real estate agents and sellers want you to consummate the transaction. You should never expect the picture to be as “rosy” as painted by the other person.

If you invest in foreclosed homes this is doubly true. Your due diligence process should be rigid enough to help you complete only the real estate deals that meets your predetermined criteria for investing.

4) Distressed properties

Foreclosures and short sales are not the bargains they were over a year ago. With the shortage o inventory for moderately prices homes, the price gap between standard real estate has narrowed. It means that you are going to have to look harder for cheap houses. If you focus on preforeclosures and short sales, you can eliminate some of the challenge of finding suitable properties because you can strike before sellers list homes with a real estate agent.

5) About location

Try to buy foreclosed homes and other investment real estate in the best location possible. Research the locations to determine vacancy rates, rent prices and historic appreciation rates. Some experts recommend going for more profit but in less desirable
neighborhoods. For example, if you net $1,000 per month $125,000 investment, or $12,000 or a 9.6 percent rate of return or cap rate.

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