Wednesday, October 13, 2010

9 Tips For Buying A Foreclosed Home

1. Budget Carefully- Don’t let a small price tag lure you into a quick deal. Questions you should be asking yourself: Do you have the money for extensive repairs? If you plan to rehab the home and then rent it, can you afford the house if you don’t find a tenant?

I like to tell people to get a number in your head as to what you think it will cost to rehab, and then add 50% to it. There are always hidden problems that will need to be addressed. If you budget for that extra 50% and never use it, then its profit. Work backwards from what you think the house would be worth fixed up and start subtracting repairs, realtor fees, title work, taxes, and the purchase price etc. You might find that you will be upside down when it is all said and done.

2. See The house for yourself. Many investors have made mistakes by buying “sight unseen”. If you are an out of town investor, have someone from the area that you are wanting to buy in go out and take a bunch of pictures and give you a description of what they see.

3. Look at the neighborhood. Do your homework and check out crime rates and foreclosure rates in the neighborhood that you are looking to buy in. High crime and high foreclosure rates will make it difficult to recoup the cost of repairs due to falling home prices in that area. High crime rates may make it difficult to rent out.

4. How long has the house been empty? The longer a house sits, usually, the more damage there is. Vacant homes have a tendency to be vandalized, so check the walls and plumbing carefully. People like to break into vacant homes and take the copper plumbing.

5. Was it winterized? Do a very careful inspection of the plumbing and look for breaks and cracks before turning on the utilities. If the house has been winterized, when was the date? I’ve seen homes that were not winterized until March. By then, it may have been too late.

6. Look at the landscaping. Look for hanging braches on trees that are up against the roof, it could be concealing a roof or shingle problem. Look for grown up vegetation around the siding and base of the house. Vegetation holds in moisture making it a prime Termite area. Sometimes improper grading around the house can cause water problems if the house has a basement.

7. Have the home inspected. Expect a whole laundry list of things to show up, but what you are looking for are major defects. The big things that are going to cost lots and lots of money. Roofs, electrical, plumbing, foundation ,mold, furnace, AC, and well and septic if not on city water and sewer. A $300 to $500 investment in inspections can save you from making a huge mistake that could cost you thousands.

8. Consider buying a HUD home. The Department of Housing and Urban Development is sitting on 10’s of thousands of homes and usually sell at bargain prices. Local government and owner occupants get first shot at buying these, but if they pass on them, investors are allowed to bid on them. Investors account for about ½ of the HUD home purchases. HUD homes come with a property condition report, but still get an inspection of your own. Beware though, HUD homes usually have extensive damage to them but the trade off is a better price.

9. Don’t expect to profit from a quick sale. People that buy a home and put very little into it expecting a large payoff are generally fooling themselves and may find little profit and big headaches down the road.

No comments:

Website Hit Counters