The Truth Behind Buying Foreclosures that Will Save You Thousands
Updated: Jun 29
How many of you really know the ins and outs of Real Estate Foreclosures? First off, the term Foreclosure is very broad. Meaning that there are several parts, including ‘Pre-foreclosure’, Short Sale, Auction, and Bank Owned. So, the term ‘Foreclosure’ is really a process that someone goes through, not a Real Estate Strategy. In this article, I would like to give you some tips when purchasing Bank Owned (REO) properties. These are homes that the bank has repossessed after terminating the property rights of homeowners who defaulted on their mortgages. The bank, now the owner of the house, usually wants a quick sale of the property, and therefore foreclosed homes are usually offered at reduced prices.
Be aware that most banks almost always have addendums to a sales contract that are designed to protect their own best interests. When you purchase a foreclosure, it is always on an “as-is” basis.
That means that any repairs that must be done to the home and any outstanding liens on the property become your responsibility. Simply put, the bank will assert that they have no knowledge of the property's condition. Then they will relinquish all accountability for any necessary repairs/liens – including the cost. This means that what you thought was a great deal might not be.
This is where the recurring term “Due Diligence” comes in.
Hire a title company for a title search to ensure there are no liens, HOA dues, etc. This way, you’ll know that the title is free and clear.
A dirty little secret about foreclosures is that they are almost always in very poor condition. Hiring a qualified home inspector is a must because, many times, they will uncover extensive damage and identify complex repairs that need to be done to the home.
The key is to have the home inspected before signing a contract because once you’re under contract, it is extremely difficult, if not impossible, to ask the bank to give you money back for any restoration efforts. Once under contract, all costs are yours!
What does this mean in the long run?
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Many so-called Real Estate Mentors, Speakers, and Coaches regale of the money that they make, their own fancy homes and cars that were purchased with dealing in foreclosures, and tell you how you can do the same by buying their program.
But the one major thing that they somehow forget to fill you in on until you’re in the program is that to do Foreclosures, you’ll need money or access to money.
This is not a “No money down strategy like Lease Options or Wholesaling,” but there are ways to assign these contracts with the correct knowledge. So, if you cannot put down large down payments and repairs or do not know anyone to invest in them for you, stay away and start off as I did. Start off with some no-money-down strategies until you build enough capital to take advantage of foreclosures.
One last tip… Before buying a foreclosure, the most important thing to understand is your exit strategy. If one thing fails, what else can you do? Be sure to look at every angle before investing substantial money into them.
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