Maybe you’ve been researching foreclosure investment for some time and are ready to make a purchase, or maybe you are just starting to think about it—wherever you are in the process, these five tips can help you along the way.
Create an Investment Plan
The first step you should take should be asking yourself how do you plan to use the property. For example, do you want to renovate it and flip it? Do you want to rent it out and turn it into an income property? Or do you plan to live there yourself and build equity? After you answer that question, then you should develop your investment strategy accordingly. This may include setting aside extra funds for renovations or researching zoning laws for renting to make sure you will be able to legally lease the space. If you plan to live there, make sure you research home locations and neighbourhoods to make sure you will be near all the amenities you need.
This may seem obvious, but finding out how much of a loan you can get (if you are planning on financing any of the purchase with a lender) is a good first step. However, with foreclosures, there are also a few other costs you may not have considered such as home renovations. Another important financial point to remember is that once you close on the home, you will have to pay the mortgage and utilities until you are able to sell it or find renters to mitigate the costs. If you plan on doing extensive renovations or the real estate market in your area is not very hot, you may have to make more payments than you were planning. If you do not plan to live there while this is happening, you will be paying two mortgages. It’s not a bad idea to have extra funds reserved in case that happens.
Get a Professional Home Inspection
If you are able to get a professional home inspector to see the property before you purchase it, you should do it. Though it is an out-of-pocket cost it can prove well worth the money as inspectors know to look for issues that aren’t always visible to the naked eye such as foundational problems, mould, and electrical issues, among others. Finding major issues like these before investing in a foreclosure can save you from a potentially bad investment or allow you to budget for the fixes appropriately.
Make Sure the Title is Clean
What is a “clean title?” Some foreclosures have outstanding liens against them that are attached to the title. Sometimes the new owner must pay off the liens attached to the title (which may or may not be nominal), but mostly the claims will muddy the chain of title and cause a lot of headaches for the buyer.
Hire a Real Estate Agent
For your fist foreclosure investment, it’s a good idea to work with a real estate agent, especially one with experience in foreclosures. They will be able to offer advice on properties and guide you through the process.