Purchasing a foreclosure!

8 Steps to Purchasing a Foreclosure!
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Preface:

GET PRE APPROVED! Shopping for foreclosures is an enjoyable venture. The idea of purchasing a property for thousands of dollars under market value is exciting. What often happens, however, is that buyers will find the right property, at the right price, but will NOT have prepared the right way. Rarely will a bank entertain an offer from someone not PRE- APPROVED. Speak to a banker before starting the home hunting process. It will gain you thousands in the end.

1.) LOCATING FORECLOSURES: There are several ways to find a foreclosure.
a.) COUNTY RECORDERS OFFICE Go to the local Court House and inquire with recorders office, or the county clerk. Ask them about any defaults that have been reported in the area of interest to you. If it has been reported, generally they will help you out.
b.) FSBO (For Sale By Owner) Look at for sale signs posted at properties. This generally means the seller needs the most out of the house and may be nearing a foreclosure. Even if they are not, you still may be able to strike a deal!
c.) VACANT HOMES This is a good indication owners have abandoned the home. You can determine whom the owner is by cross referencing the property tax records at the county courthouse, or simply ask the neighbors.
d.) PRE-FORECLOSURE LIST Check with a local broker, or REALTOR. Generally there is someone in most all real estate offices that specialize in foreclosures.
e.) LEGAL NOTICE Most defaults are posted in the local paper. These usually come out once a week. Use this information to get started.

2.)DETERMINING VALUE Determining the value of the property will consist of several factors.

• COMPARABLES: Compare similar homes in the neighborhood that have SOLD. A property listed for any dollar amount means nothing when determining value. If it has closed within the last 6 months and is similar to the subject property, it is ok to use this.
  
• DOM: Days on the market. If a home has been on the market for 485 days and has not sold, this will be a sign that it may be overpriced and should be reflected in your offer.
  
• DEMOGRAPHICS: Also school district, crime statistics, shopping, bus route, and any other amenities are helpful in determining value.

3.)DETERMINE YOUR GOALS You should establish your goals. Is this purchase for your personal use, or for your family to live in? Is this property a long term investment to hold and rent? Is this a short term "flip". All of these need to be considered. This will help weed out the prospects for whatever your reasons are for purchasing.

4.)HIRE AN INSPECTOR Every home that has ever been built has (what I call) "fluff". It looks great, the layout is great, but in reality it creeks and crumbles from faulty construction, maintenance, climate, etc. Hire a professional inspector that will look past the "fluff" and tell you what is in the "guts" of the house. How is the roof, foundation, siding, ventilation, furnace, water heater, plumbing, electrical, heating. All the important things that the next buyer will inquire about. Paint, carpet, and other "fluff" can be fixed fairly cheap. A new roof? Not so cheap!

5.)REPAIRS, COSTS, FUTURE VALUE When you have narrowed your search down to a handful of property's it is crucial to assess what each home needs down to the last doorknob. For example if you added you repairs, and compared to your future value and came up with $30,000 profit, that's exciting! If something unexpected pops up like the seals in all the windows are shot and all windows need replacing totaling $25,000, there goes all the profit. Your lack of diligence in the inspection process, or the calculation of how bad the windows are, cost you a lot of profit. Determine values carefully! Property by property. Use spreadsheets, and detailed lists to help you keep yourself organized. Have a great repairman, or handyman on hand. Someone you can trust that will help to determine the actual cost of bringing the property up to move in condition a buyer will be sure to purchase. Exact costing is critical to you success. Also just as crucial is the future value of the property when completed. This can be done by searching county records for recent sales. This is in combination with step #2 above. Be diligent in your valuation methods. Do not use "blue sky" what the market may be doing in 6 months or next year. What would the house sell for today, or 2 months. Markets turn quickly. Whatever value is determined be conservative. Do not "blue sky" yourself into thinking you're going to get rich quick on this flip. Be conservative, be cautious, and be consistent in your valuation. If you need help, consult a local REALTOR. They will be of great service to you!

6.)WORKING WITH THE HOMEOWNER If the homeowner is still involved and you are negotiating with them, be respectful, professional, and a good listener. If the home is worth purchasing often times with pride on the line, if the homeowner is treated like he or she is being forced out, they may decide to let it go to the bank and not make a deal. If you are cordial, and professional the likelihood of a positive outcome is much greater!

7.)WORKING WITH THE BANK This is where things may get a little more complicated. If there is little or no equity in the home, and the homeowner does not have the money to cover a "shortage" meaning the home is worth less than is owed, a bank may entertain what is called a "short sale". As current maket conditions become tougher and tougher to sell for what the sellers owe, banks are considering more and more short sales. How short they will go is up to each individual bank. The problem with negotiating a deal with the bank is the lack of emotion. Banks make decisions based on "bottom line" profits or losses. There is no emotion as if a seller was involved. In any case acting professionally, and cordially, will always render better results.

8.)CLOSING YOUR HOME This is just as important as all the other steps. Without the proper transfer of ownership, this can be more costly than new windows. Find a reputable title company in the area and hire them. Title insurance is important to protect you from any encumbrance on the property. This could include the neighbors fence on your lot, a play set over the lot line, title transfer was not proper 20 years prior when the home was built. Most often an encumbrance can be cured, but without a title company halping you along, it can get quite costly representing yourself.

Conclusion

Investing in real estate is an exciting, yet complicated venture. As long as you remain diligent in your search, valuation, and negotiation, success will be the end result! Avoid quick "flips" or "sure things". As the old adage goes, if it seems to good to be true, it most likely is!
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