Investing in Foreclosures
Investing in foreclosures can appear glamorous and easy on television shows, but it can be pitfalls for many inexperienced investors. However, foreclosures can also be goldmines for experienced investors that are looking for real estate investments.
Unfortunately, financing a foreclosure can be difficult, as many foreclosures have problems. Most foreclosure investors rely on hard money lenders to provide direct lenders funds upon closing, which helps provide a fast, convenient closing that doesn’t require the necessary inspections and government regulations that traditional lenders must enforce.
Foreclosures are often poorly maintained, as when owners fall behind in payments, they rarely feel the desire to keep homes in good condition. Many people that are going through foreclosures are frustrated and feel intense anger, which often causes them to remove appliances, fixtures, vandalize homes, paint profanity on the home’s walls, rip out carpeting and create further damage.
Maintenance and cleanliness is also a concern with foreclosures because houses may have sat empty for several years, be occupied by vagrants, have no air circulation, have mold growth, etc.
The former owner may have also renovated the home without obtaining proper permits or completing renovations properly. Common examples are renovating garages and converting them into living spaces, adding on decks or porches, trying to remodel bathrooms or kitchens, etc. When the work is not completed correctly, this can leave new homeowners facing issues with city or county permit authorities. New homeowners can easily find themselves tearing these conversions off, obtaining new permits, possibly paying penalties and fees and hiring professionals to complete the work in a timely manner.
Most foreclosures do not have electricity, as banks generally turn it off to save money. This makes it only possible to view homes during daylight hours. Water damage can easily turn into mold problems, but since banks also turn off water, homebuyers need to carefully look for signs of water damage. Additional expensive repair costs can include repair leaks, broken garbage disposals, broken appliances and termite damage.
Most foreclosures are sold “as is,” which means that the new owners inherit all the personal belongings former owners leave behind. This may include furniture, clothing, trash and other items. New owners should factor these items into trash removal costs.
Hard money lenders are among the best resources for financing foreclosures for investors that want to quickly remodel and flip a foreclosure. Investors can quickly obtain financing without facing all the government-regulated red tape that traditional financing requires. As direct lenders they are able to make quick decisions, without the hassle of time consuming underwriters, most investors prefer to work with professional real estate development loans.