As the U.S. economy continues in its slump into the last quarter of 2008, more and more homes are on the market and continue to be on the market for longer periods of time. More homes are on the market as foreclosures from home owners not being able to keep up with their mortgage payments. Huge housing market supplies lead to decreasing home prices.
With so many homes on the market there are an incredible amount of good deals to be had. One source of good deals is to buy a pre-foreclosure home directly from the home owner or a foreclosed home either directly from the mortgage lender’s real estate agent or from a real estate auction.
Coupled with a large inventory of homes and good deals there is a lot of people looking at buying real estate for all kinds of reasons. Real estate investment strategies range from occupied ownership to long term rental investment to fix and flip. This article covers strategies to purchase a pre foreclosure or foreclosed home.
Purchase or Investment Strategies For Foreclosed Homes
The following strategies include purchasing pre foreclosure as well as foreclosure properties. One thing to keep in mind no matter what strategy you utilize – keep detailed records of any money you spend and any verbal agreements you make. For verbal agreements, make sure to capture them in writing.
Purchase and Occupy – If you are only in the market to purchase a home to live in, the foreclosure market is an excellent place to find a great deal. Beware that the best deals are probably going to come with homes that need rehab work. If the home doesn’t need work then the price is likely to be higher. You have to weigh what your wants and needs are to figure out buying a home that needs work or one that is essentially move in ready.
Sell Before Buying – Finding a deal, negotiating a purchase price and getting that offer accepted is important work. You may not want to go much further than this. If this is the case you may want to consider finding a buyer for the property and assign your right to the property and the sale contract to them. You’ll have to work out a fee for doing the work to get the purchase contract accepted and bringing a buyer to the table.
Sell To Other Investors – You may be able to strike a deal on a property and turn around and sell the home to another investor a little more than you got it for. In this case you’d want to do for a smaller profit margin and without getting into any rehab work on your part. You won’t be able to go too high in your selling price as real estate investors are pretty savvy and won’t over pay too much for any particular property. One thing to keep in mind is that in real estate there are always another house and another deal – nothing ever qualifies as the best deal.
Sell Without Rehab – If you do not want to work with homes that need rehab you may want to only look at properties that are still in good shape that you can turn around and resell. Typically a home that is already in good shape is going to be sold to a family, or individual who is looking to buy a home to live in. Again, don’t try to over price as there are plenty of homes out there to choose from.
Rehab and Sell – aka Fix and Flip – Many foreclosure properties fall into this category. With the seller losing their home they have little incentive to take care of the place and can often go so far as to remove cabinets, appliances and fixtures that they installed while they owned it. Foreclosure properties are great deals, but you will have to have vision to work with this type of property. Some real estate investors move from home to home while they rehab them. If you can do this, it is a pretty economical way to live and work on a home.
Purchase, Rehab and Rent – This strategy is only going to work if you want to become a landlord, and you don’t need access to any of the money that you sunk into the house to get it livable again. The numbers have to work and you need a pool of cash whether yours or other people’s money (OPM), but holding onto properties for rentals is one way to build a long term real estate portfolio.
Rehab and Refi – This strategy actually falls on the heels of the rehab and rent strategy. If you get a good enough deal you may be able to refinance after you complete the work on the property to pull some of your initial investment back out of the property. Again, this only works if you can keep a positive cash flow and if you don’t need to get all of your money back out that you put in for the purchase and the rehab expenses.
There may be other options for purchase strategies that you may take. The ones presented here are some of the most common and basic. Just remember if you are planning on using financing to buy a home for either living or investment purposes make sure that you get pre qualified first so that you know exactly what is required of you to get the mortgage. The 2008 mortgage environment has vastly changed from the years gone by where you could get a loan if you could sign your name and you had good credit. Good luck and happy house hunting.
