3 Tips On How To Buy Foreclosures For New Investors

3 Tips On How To Buy Foreclosures For New Investors

June 10th, 1972 |

Author: admin

National home sales rose 2.9 in February giving hope to the nationwide slump in house sales. Savvy home buyers are beginning to realize that one mans misfortune can be another mans fortune. Foreclosed homes are the main force driving this welcome birth in new home sales. Some markets like Las Vegas are reporting that foreclosed homes make up as much as 40 of reported sales in the real estate market.

Many of these purchases are being made by investors large and small. If the housing market were a blue chip stock analyst would be screaming buy buy buy. House prices and property values are almost certain to come up in the future leaving those who bought homes today in very good financial shape. This being said there are a few pitfalls that wouldbe investors need to look out for when attempting to buy foreclosures in todays market.

1Location Location Location We have all heard this before but it has never rang truer than it does today. Whether you are buying your home to flip or buying your home to keep as a rental property location is your first key consideration. With foreclosures looming in almost every neighborhood you need to look for neighborhoods with the least amount of foreclosures in them. These are the properties that will heal first as the market begins to turn around.

These homes will tend to be in the middle to upper priced neighborhoods. You should choose your price range according to your intended use of the property. If your goal is to rent the property be careful not to buy too much home because most people that can afford to rent higher priced homes can also afford to buy them. Look for lower priced homes in good neighborhoods and close to schools. Transversely if your goal is to flip the house and you have the capital to hold the home for an extended amount of time larger houses will bring larger profits.

2Buying Fixer uppers Most wouldbe new investors that I speak with are looking for this type of property to purchase. It is true that these properties offer a much higher reward when purchased correctly but they also represent the largest reasons new investors fail. Unless you have deep pockets meaning you can purchase the home outright or put a substantial amount down new investors should stay away from homes that need a lot of repairs.

Buying a home to fixup and flip or rent can open up a can of worms that even the savviest investors have problems with. Contractors inspectors and weather delays are all intangibles that you cannot foresee. Not to mention if you have this home on a high interest ARM or hard money loan and you hit delays in repairs or renting the property you could lose planned profits for years to come. My advice is to begin with a home in good shape that you can get at a bargain price to get your feet wet and move on to distressed property as you build your reserves and experience.

3Hard Money Lenders If I had a nickel for every time a new investor asked me for a hard money loan I would be rich. Hard money loans are analogous to commodities in the stock market. Even the most experienced traders get burned with commodities every once in a while and the inexperienced are almost certain to be burnt. So it goes in the housing market hard money loans are one step above a loan shark. They loan money on low loan to value homes and wait eagerly for the investor to fail. They follow the foreclosure laws in each state step by step and are extremely efficient at taking properties should the investor slip.

However in the defense of hard money lenders they do play an important role in the careers of many investors. If you have ample capital good prospects for selling or renting the home they can be an indispensable asset to experienced investors. Experienced investors are prepared for and can even anticipate delays in construction renovations and slow rental markets. For new investors we suggest buying a home through traditional channels to begin with. Once you have ample reserves and some experience you can move to the bridge loans and hard money loans.

There are many other pitfalls to look out for but these three seem to be the top three I see new investors making. For fast mortgage closings and peace of mind we suggest that you find a good mortgage company that you trust and stay loyal. Building good relationships with builders mortgage companies and realtors can go a long way to helping the new investor survive in todays real estate market.

About the writer: Aubrey Clark is a syndicated writer on financial matters and the editor for Lendfast.com. He writes extensively on lending topics like where to find low interest rate credit cards to how borrowers can obtain Georgia low mortgage rates.