When real estate is cheap, even the greatest and most obvious deals are overlooked. That’s exactly what happened with foreclosures in the Great Recession and housing crisis of 2008-2012. In those years, foreclosures were so common that they flew under the radar. Even now — when prices have returned to normal — most people still don’t know how to find or buy a foreclosure as an investment property. To get a deal on a property, you need insider information and negotiation skills. If that sounds like something you can handle…great! But it isn’t easy for everyone, which is why we have this article ready for you. Here are some tips on how to find and buy a foreclosure early for maximum savings.
Table Of Contents
Know the Basics of Foreclosures
For starters, you need to know how foreclosures work. If a home is foreclosed, it is repossessed by the bank. The bank can then sell the property at a public auction, or in some cases, do a short sale where the bank accepts a lower price for the property. When a property is foreclosed, it goes on the public record. At that point, anyone can search for and find the details of that property. In most states, the record is available online. Here is a sample from California. You can also look for foreclosure notices in newspapers, especially the smaller legal notices that aren’t online. These can give you a head start on the process.
How to Find Foreclosures Early
The best way to find foreclosures is to watch the housing market closely and look for properties that are “underwater” or “upside down.” These terms mean that the home is worth less than the amount owed on the mortgage. The owner can’t refinance the mortgage or sell the house without either paying off the rest of the money they owe or bringing the value of the property above the amount they owe. In some cases, banks will work with the homeowner to get out from under the debt. But most often, they will call in the loan and repossess the property. Now, a word of caution: If you try to buy a home from a homeowner who is “underwater,” and you do not have a deal in writing, you may end up in a situation where you lose your money — especially if you buy from someone who can’t pay off their own mortgage.
Negotiate Like a Pro
When the foreclosure papers are filed, the owners are given a certain amount of time to either pay off the amount they owe or find a new buyer. In most cases, you can negotiate the price down from the amount stated in the foreclosure papers. Keep in mind that the amount you can negotiate down will vary. For example, at the height of the crisis, one study found that you could get away with a steal: The average discount on a foreclosure was 63 percent of the original asking price. But now, things are different. With fewer foreclosures on the market, you’re likely to pay full price — or close to it.
What to Watch Out for When Finding and Buying a Foreclosure
When you find a foreclosure that interests you, there are a few things to watch out for. The most important thing to watch out for is the condition of the property. Although the foreclosure will have been inspected when it was repossessed, if it has sat empty for a few months, there may be issues that you will want to address. In addition, there are a few things that you should always ask about, such as the condition of the appliances and HVAC system, the water heater, roof, and other major appliances. You don’t want to buy a house and then have to spend thousands of dollars on repairs.
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