Tip 4: Do your homework
Stocks offer higher potential returns for investors than traditional savings programs, but are also riskier. Similarly, purchasing foreclosure properties is somewhat more risky than buying traditional real estate properties, but offers much higher potential savings. With the right examination and due diligence, buyers can significantly reduce the risks. It makes sense to give any property under consideration a thorough examination. Here are eight steps for doing a professional-level exam.
Examination process steps
- Identify desirable neighborhoods - Identify specific neighborhoods where you'd like to live or own a home. This will limit your search to a manageable size for you and your real estate agent, and give your a sense of relative property values.
- Cast a wide net - There are a number of Web-based services that can put hundreds of thousands of foreclosure properties at your fingertips. Since the best savings are often found in pre-foreclosure properties, it's important to check the percentage of pre-foreclosure (vs. REO) properties in any database before subscribing.
- Determine the property value - Look at the original purchase price, and recent comparable property sales to determine the current value of the property.
- Find out the amount in default and the remaining loan balance - In order to determine a reasonable offer price, you'll need to know - at a minimum - how much money it will take just to satisfy the debt to the lender.
- Run a legal investing report - Before purchasing any foreclosure property, make sure it is free and clear of any bankruptcies, tax liens or other financial liabilities.
- Assess the condition of the property - If at all possible, visit the property, ask your realtor's opinion, and review pest and structural reports to make sure that the property is in acceptable condition, or to determine how much of a rehab budget you'll need to build in to your deal.
- Build a positive relationship with the seller - Before purchasing the property, try to make sure that you're entering into a win-win situation with the seller, so that they'll do what they can to make the process easier and leave the property in good condition.
- Leverage your timing - Knowing when a property is going to be auctioned gives you an extra bargaining chip when negotiating with the seller or the lender.
Information provided by RealtyTrac, your Inside Track to Real Estate.
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