At some point in your career as a real estate investor, you will come across the opportunity to buy a foreclosure—if you haven’t already. Distressed properties (foreclosures and short sales) can be really tempting, and for good reason. They often appear to be a screaming deal and it’s true, many investors have gained strong returns from such investments. BUT, it’s important to not get swept up in the appeal and urgency that comes with these kinds of properties.
Before you go racing to the courthouse steps, consider these three tips:
- Do Your Research. Never buy an investment property, sight unseen. View the property, and find out about its history. Take an inspector or building contractor along with you (someone who can view the property objectively). You need to know what you are buying, from its legal background to the infrastructure. Are there liens on the house? Who lived in it previously? What condition are the foundation and roof in? What about the plumbing and electric? Why is this house in foreclosure to begin with? That final question is not as obvious as it sounds. The events that led to foreclosure can tell you a lot about what you’ll be getting into with the property.
- Work with a Specialty Realtor. Do you have a realtor whom you trust? If not, you should find one who will be an active partner in your investments. If that realtor does not specialize in foreclosures, ask them to refer you to someone who does. Foreclosed properties come with a lot of red tape. Cutting through that tape requires knowledge and a fair amount of savvy.
- Don’t Ignore Location. You could find a great foreclosed property for a really good price and still lose on it if that property isn’t in the right location. Choose properties in areas that are slated for improvements or redevelopment. If a foreclosure is in a neighborhood that is steadily on the decline, you’ll likely have trouble renting it out and you certainly won’t get what it’s worth in rent.
Keep these tips in mind when you consider purchasing a foreclosure—and you’ll likely know that screaming deal when it comes along!