What to Look For And Avoid When Buying Foreclosed Properties
Buying foreclosed properties can be a highly profitable investment. But, it can also result in a considerable loss for you if you fail to perform careful research and due diligence. By carefully looking at the road, you can avoid landmines and uncover treasure troves.
Not all properties that have an attractive price are good buys. Indeed, the adage “too good to be true” applies very well for the real estate and foreclosed property industry. In addition, never make the mistake of buying a property without first giving it a thorough walk-through.
Here are indications that the foreclosed property is a good investment:
– High-growth location. This means that the property is in an area near public transport and shopping complexes, as well as business districts.
– Gracefully aging neighborhood. On the other hand, a neighborhood where people exhibit pride of ownership indicates that the location is a good one. Look for homes with add-ons and well-tended lawns.
– Sound structure. The house’s foundation, posts, roofing and electrical system are sound. There are no signs of significant damage such as watermarks on the ceilings, cracks on the walls or a sagging floor. Any repairs or renovations are cosmetic or minimal. The rule of thumb is that any repair costs will not exceed 10% of the amount you paid to purchase the house. Also, be sure that you have enough funds to cover repairs so that you can easily sell the property at a profit or have it rented out. You can get a residential home bridge loan or hard money sources to quickly get the funding you need.
Here are red flags that tell you to avoid buying a certain property:
– Lackluster or abandoned neighborhood. Look at the other houses in the neighborhood. Are these houses well-kept or not? Are there signs that some houses are abandoned? Are the streets clean or lined with trash? Is the community known for its high crime rate? This can indicate that the neighborhood in itself is problematic and you may have a hard time turning over your investment (i.e. selling the property or renting it out).
– Location of the neighborhood with respect to amenities and roads. How far are community-related services and establishments such as hospitals, markets or grocery stores, police station and banks? Is the property near the main road? Ideally, it should be near major the roads but not too near that future residents are subjected to the noise and grime of a busy highway.
– Properties with Title Issues. Do your due diligence and ensure that there are no unpleasant surprises where you end up without a legal claim on the property. If the property has no clear title, there is no guarantee that the seller actually has the legal right to sell the property. To protect yourself, you can either add a clear-title contingency (that the purchase only pushes through when the clear title is presented) or get yourself covered with title insurance. However, a property with title problems is a clear red flag.
– Houses that have been empty for a long period of time. An empty house will experience a lot of damage. It can be infested with vermin and pests, have clogged drains or toilets and plumbing seals that have dried out. Also, an empty house is an open invitation for vandals to come in and wreak more damage.
– Neglected trees and landscaping. This may indicate that the roots of the neglected and untrimmed trees may have already done damage to the foundation of the house.