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About Foreclosures

You may want to look at purchasing a foreclosure property. Generally, these properties can cost less, although there are important issues to consider.


	Finding Foreclosure Properties for Sale
	Government Agencies
	What to Look For
	Hold or Flip?
	After the Purchase
	After the Purchase

Finding Foreclosure Properties for Sale

There are many places to find foreclosure properties: banks, mortgage lenders, government agencies like HUD, VA, Fannie Mae, Freddie Mac, and many others. The reason you get a better deal on most foreclosures is that selling real estate is not these companies’ primary business. Once they acquire the deed of the foreclosure, they want to liquidate (sell) it as soon as possible.

Most of the time, lenders are looking to get rid of these properties quickly, and they are willing to consider any offer above what is owed on the house in order to recover the loss.

When purchasing a foreclosure you get a clean title. The lending entity is now the owner of the property, and you must deal with them, not the original owner. The lending entity owns the foreclosure home because the original owner had overdue payments on one or more of the following: mortgage, taxes (federal, state or local), assessments, lien, homeowner association fees or utility bills.

In some cases you can get a better deal if you get your home loan through the company who is providing the foreclosure.

Government Agencies

U.S Department of housing and Urban Development (HUD)
Federal Housing Administration (FHA) works below HUD

U.S. Department of Veterans Affairs (VA)

Internal Revenue Service (IRS) foreclosure real estate sales

Federal Department Insurance Corporation (FDIC)

foreclosure real estate sales

U.S. Customs and Border Protection (CBP)
Is now under U.S. Department of Homeland Security

Local county and city taxation agencies

Local sheriff offices

What to Look For

If you do not like to fix and repair homes, search for properties that only require cosmetic repairs. If you plan to fix up the foreclosure, or know a good handyman, you should consider government foreclosures that require extensive repairs. You will need to do your research and make sure you can get it for a price that justifies the needed repairs.

Generally, the worse shape a property is in, the better deal you can get. Most buyers shy away from homes that look like they need a lot of repairs, so the worst looking house may be your best bet for a fixer-upper. There are some damaged foreclosed homes you do not want to buy. Here is a list of things to watch out for on foreclosures.

Signs of costly problems that require an additional inspection:

Cracked or uneven foundation
Serious electrical problems
Water overflow and plumbing problems
Dips in the roof or missing shingles
Obvious termite or animal infestation problems

Very costly problems you should try to avoid:

Structural problems (cracked or uneven foundations)
Environmental problems (asbestos, lead or oil leaks)
Building code violations
Serious pest problems (termites)
Roof structures that cannot support a new roof
Deteriorating neighborhood
Homes with illegal build outs without permits

Homes in the following locations:

Near apartment complexes
Next to highway interstates or freeways
Behind a shopping center
Near industrial parks or commercial zones

Simple things to fix:

Paint
Damaged or ugly carpets
Broken garage doors or windows
Appliances that do not work

Hold or Flip?

Before you purchase a foreclosed home, you should decide whether to hold onto it or flip it. Here are some things to consider that may help you decide:

Hold: You want to hold onto the investment and rent it as soon as possible to generate positive cash flow. Renting lets you receive income for the cost of the mortgage, and, if the market is right, your property may also gain in value over time.
Flip: Properties to flip are those that are purchased at the beginning of an upward turn in market value in the area or the neighborhood. This happens when people start to desire living in the area and are willing to pay more and more to do so. New retail businesses opening up in the area is another sign that the real estate market is improving.

Before flipping a home, come up with a game plan. Write down your goals and timeline, set an agenda that details cost and potential profit. Your game plan can help you can attract investors or obtain funds from a lender. If you are just starting to flip homes and do not have the funds to pay for the flip, having a business plan is an important first step.

Common Flip Mistakes

Your time is money. Make sure to calculate an hourly rate for yourself in your business plan. There will be bills to pay before funds are coming in. You must decide whether to work on the flip or go out and make money to pay the bills.

If you are looking to flip the property, and it is not at least 20% lower than comparable properties in the area, then chances are it is not worth flipping. It will be too hard to recover your costs.

Your business plan should include 6% of the sales cost for the real estate agent’s commission, as well as closing costs.

Check to see how quickly homes are selling in the area. If real estate sales are too slow, it could take months to recover your costs.

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