Are Foreclosure Deals All They're Thought to Be?
Buying a home is a major investment, so it´s understandable that you want to get the best deal possible. With the housing market in a decline, and foreclosures on the rise, many people have the idea that buying a foreclosure could be the deal of a lifetime. While it´s possible to find a house in foreclosure for less than market value, making this kind of purchase is not a good idea for the real estate novice. There are a number of details to consider so that your supposed unbeatable deal doesn´t turn into a quick and painful loss.
Preparing Your Bid
Make sure you check with a local real estate agent before making a bid. The mortgage company wants to cover the balance on the loan plus any expenses they might have. If the home you are considering was overfinanced, however, or the market has dropped in that area, you may be better off buying a home that is not in foreclosure.
Another important thing to remember is that foreclosures are usually sold "as is." That means you want to cover yourself by inspecting the property before making an offer. If it isn´t possible for you to do an inspection first, you should have a provision in the contract that allows for an inspection prior to closing. Sometimes repairs are minimal, but if a homeowner doesn´t have the money to pay the mortgage, chances are there isn´t money for maintenance either. There are also instances where the owners intentionally damage the home or remove fixtures and appliances before moving out.
Calculate the Cost
Once you list necessary repairs, determine what the costs will be. This requires a little homework. Maybe you´re handy with home repairs. In that case, the price of fixtures or a couple of cans of paint may be all you need. If you´re not a handyman, or if the repairs are more involved, have a contractor give you an estimate. Find out what it will cost as well as how long repairs will take. Time is money. If you can't find a contractor immediately or if repairs will take an extended amount of time, you could be losing out.
Can You Flip It?
Flipping is when you buy a home at a low price with the intention of making the necessary repairs, then quickly sell it at a profit. It sounds great, but is often easier said than done. Before you consider flipping:
1. Know the Market. Putting lots of money into repairs might make the house more appealing, but you don´t want to put more cash into a home than you´ll be able to get back. That´s why it´s important to contact an agent that´s familiar with the local real estate market to help you out.
2. Have a Reliable Contractor. For every month the house isn't occupied, the mortgage payment has to come out of your pocket. Can you afford it if it takes three or four months for someone to complete repairs?
3. Consider Commissions & Fees. In addition to calculating the value of the home and the repairs, also consider the costs of selling the house. Since the seller typically pays for commissions, build that amount into your offer. Keep in mind, too, that sellers don´t normally get their original asking price. Leave some room for negotiating.