3 Rookie Mistakes When Buying Foreclosed Homes
If you have been thinking about jumping on the foreclosed homes bandwagon and makingsome pretty good money off of these homes then it may seem like a simple process. Get a foreclosed home listing, make an offer close to the listed price and cash in.
Unfortunately as with anything in life it is not quite that simple. The great news is that while you probably wont make big money all that easily with some hard work and a little knowledge you can cash in on one of the hottest foreclosed homes markets we have ever seen. The key is to avoid 3 of the big mistakes many new investors make when setting out on making their fortune in real estate investing.
Mistake 1 Using the banks sale price. Many new investors often use the banks price on a foreclosure listing as a method to decide what they will offer for the home. Here is a common scenario, take the banks listing price on the foreclosure and reduce it 30% to make an offer. While this is a simple method and appears you are sure to get a deal there is one problem. The banks listing price may or may not have anything to do with the value of the home.
I recommend that you completely ignore what the foreclosed home is listed for and only use your own due diligence to analyze the deal. First you should calculate the market value, then take into account any repairs needed and lastly build in your profit. This should be the only offer you should make on a bank owned home, or any other home for investing purposes for that matter.
Mistake 2 Get your deals from one source. Yes I know you have a full time job and family commitments so you dont have time to work with a bunch of different sources to get your foreclosed homes listings. So you go out and find a realtor that is willing to pull foreclosures from the MLS (Multiple Listing Service) for you and you are done.
For whatever reason this just doesnt work. You will not get every deal right when you need them from this method. Instead you need to work with multiple sources to find foreclosed homes. My best recommendation is to work with a buyers agent to search foreclosures for you but you must also go to the source, the banks themselves and REO (Real Estate Owned) brokers who list these foreclosed homes for the bank. In this case the more the merrier.
Mistake 3 Having no exit strategy. I keep hearing over and over again that you make money when you buy the home. Try that out once and then check your bank statement, you will find this is not true. You might create value when you buy the home well below market value but my checking account has never grown until I sold the home. Before you even begin to look at foreclosed homes start by knowing what your exit strategy is.
The type of home you are looking for will vary greatly depending on whether you plan to fix and sell the home, fix and rent it, fix and lease option it or just wholesale it to another investor. Once you have at least one exit strategy you are going to commit to then you can narrow your search for foreclosed homes and choose the ones that are right for you.
Today, right now is the best time to work the foreclosed home market. Foreclosure listings are reaching all time highs and the banks are feeling the pain of the REO inventory. Keep in mind that buying a home for investment purposes is a serious matter and you need to have a serious plan in place to profit from it. Avoid these 3 mistakes when investing in your foreclosed home and you will be one step closer to profiting from foreclosures.
by: Allison McArthur