Make no mistake about it, buying a foreclosed property thrusts you into a competitive arena. Investors are everywhere, trying to muscle each other out to buy homes at below-market prices. And buying a foreclosure means buying a home that needs work. Short sales, while different from foreclosures, can be even more challenging when dealing with bank approvals. Yet either one of these can bring financial rewards. A distressed property can offer an opportunity, but even the best opportunities have their headaches.
Buying a Short Sale
A short sale takes place when a home is sold below what is owed on the mortgage. Cash to the bank will be "short" of the loaned on the property. Since the collapse of the financial markets in 2007, short sales have shown up in nearly every neighborhood. These can be good deals and are not considered distressed properties, as the owners are likely to still live in them. A reputable real estate agent can search the multiple listing services for you. These sales take time. The bank's short sale departments are often overloaded, and it can take three to six months or longer to get one approved. Do your homework before making a bid. Know what they want, and prepare the best proposal possible. Be patient and flexible and you can be successful.
Buying a Foreclosure
Foreclosures -- called REOs for real estate owned -- are owned by banks. REOs are often priced below market, but they are sold "as is." Most banks offer no guarantees, no allowances for repairs, and no disclosures as to the home's condition. That's information only the previous owner of the property would have. Be patient and persistent. Tour as many properties as you can. Get good at penciling out the repairs each home will need so you can calculate a fair offer. When it comes to money, make sure you don't get carried away.
Don't Outbid Yourself
Buying a house to make into a home is an emotional exercise as well as a financial transaction. Don't be seduced into thinking you need a property that you can't afford to fix up or to make a payment on. Prepare yourself financially by obtaining preapproval for financing. Know what you can afford in terms of down payment, monthly payment, and what you'll have for fix-up. All of this preparation will help narrow your search. When buying distressed property you'll be up against very motivated buyers. Having your financial package ready to submit with an offer will be critical to your success.
Deal With Experts
Unless you have special expertise in home repair or construction, work with a contractor who can evaluate the roof, the furnace, the foundation and the appliances. Know exactly what it's going to cost to repair it, to buy it, and to maintain it, and you'll be successful. Even after the difficulties of buying low, the satisfaction of building equity and establishing a pleasant living environment will be worth the hassle.
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