There are a lot of great deals waiting for Lexington investors who are looking to buy foreclosure properties. Be warned, though, that the proceedings of purchasing a foreclosure can be a bit tricky to navigate, more so when it’s your first time. Fortunately, we can offer some advice as to how to successfully buy a foreclosure property – and how to spot warning signs telling you to walk away from a deal – that way, you can add foreclosure properties to your next investment property search.
It’s important to note the difference between a traditional listing and a foreclosure. While traditional listings are typically homeowners or investors selling individual properties, foreclosures are properties that have been reclaimed by the lender or bank for nonpayment of the mortgage. The lender will attempt to recoup as much of the outstanding mortgage as they can by selling the property, often at a price below market value. This happens once the property has been foreclosed on.
Once you decide to commence the search for foreclosed properties, don’t be afraid to seek help by hiring a real estate agent who specializes in foreclosures. These real estate professionals have an in-depth knowledge of the process and the local market. It would be wise to have one at your side when considering the different investments made available to you. Look for agents with certifications like Certified Distressed Property Expert (CDPE) or Short Sales and Foreclosure Resource (SFR). These designations mean that the agent has completed additional training in foreclosure property deals.
Getting the right real estate agent is a good step towards the right direction; but, in order for you to move forward, first make sure that you have your financing lined up and ready to go. Foreclosure deals can move very quickly, so best be prepared to make deals on the go. The most successful foreclosure buyers provide preapproval letters and other documents to the bank or lender in an attempt to demonstrate their ability to close the deal quickly. The last thing a bank would want is for it to hold on to a valuable property for lengthened periods of time. But, as it is, they will hold on to it longer, if they think it will bring in more revenue. It is a unique balance and one of the reasons why buying foreclosures can be a far more nuanced process than traditional home sales.
Though the transactions might be fast-paced, don’t forget to do your due diligence. Run your numbers and locate comparable properties in the area before making any offers. In very competitive markets, you might need to offer a bit more than the initial asking price to appeal to the bank or lender. If so, then this higher price should be included in your calculations.
In the course of the transaction, pay close attention to potential red flags. As an example, make sure you don’t fall into the trap of hidden liens on the property. It’s not an empty presumption to believe that the previous owners failed to pay some or all of their other debts, especially when they stopped paying their mortgage. Unpaid property taxes and other debts can result in liens against the property that will need to be paid before the title can be transferred into your name. Another big red flag is serious repair issues or missing things.
It is to be assumed that a foreclosed property will have some cosmetic issues. However, there are tenants that have seriously neglected or even intentionally damaged the property before they are forced out by a foreclosure. Angry owners and tenants have been known to strip the house of anything of value, including copper pipes, fixtures, doorknobs, and even cabinets. Make it a point to examine the actual value of the property and how much it will cost to cover the repairs. You don’t want to end up paying more than what you bargained for.
Buying foreclosed properties is a decision each investor will need to make on a case-by-case basis. Don’t forget: to find yourself a good property investment management team is to find a bargain property that will pay out for many years to come.
Whether you decide to purchase a foreclosed home or a traditional listing in Lexington, make sure you have the right team managing your investment property. Feel free to contact us online or by phone at 617-299-2342. Real Property Management Commonwealth will be glad to answer any of your questions.
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