There several ways to find bargains in the real estate market. These include contacting people who are thinking of selling but have not listed their property yet and tracking down absentee owners who may be interested in getting rid of a property they really do not want or almost forgot that they owned. But I have found that the number one strategy to find bargain properties is bank foreclosed properties. How does this work and when is this strategy profitable?
Bank Foreclosed Real Estate
The bank forecloses on a mortgage when the property owner and mortgage holder has missed payments for an extended period of time. When this happens the bank or other lender repossesses the home and has the occupants removed if necessary. But the bank is not in the business of owning homes. They will want to sell it as quickly as possible and cut their losses. Unfortunately for the bank, when folks cannot pay the mortgage they also cannot make repairs and otherwise maintain the property in good condition. And the situation gets worse because the foreclosure process can drag on for years. So, now the bank not only has a property they want to get rid of but a damaged property that they need to unload. This is typically not a home that is ready for a new buyer to move into. It will commonly need repairs in order to be sellable. And this sort of property can be a genuine bargain for the smart investor.
Bargain Properties versus Junk
When you use my number one strategy to find bargain properties start with a realtor even if you have contacts at the bank. To make money you obviously need to pay as little as possible for the property. And you need to control your costs in restoring the property. But the bottom line will be how much the restored property will be worth in today’s real estate market. That is where you need to talk to the realtor first and the construction/rehab people second before even considering the purchase of a bank foreclosed home.
Once you have a good idea of what your costs will be to rehab the property and what the property will be worth once restored, you can negotiate with the bank for the best price.
Patience and the Housing Market
There are times when this strategy works better than others. If you have the cash to buy a distressed property in this manner, fix it up and wait for the market to improve you can make a good profit. That is why I have found this to be the number one strategy that I use to find bargain properties. But, if you are going to borrow money and if the repair costs will be substantial, be careful about buying such a foreclosed property. Especially if you do not get a good interest rate on your loan, you could end up doing a lot of work for very little profit. This is a long-term strategy that has served me well. But it requires patience and the ability to sort out good deals from bad ones. As the real estate market moves up and down the timing of your purchase of a foreclosed property that needs a lot of work is important. Ideally, you will buy a down market which will make the price of this distressed property even lower. Then you will rehab the property while the market is improving and sell a fixed up and attractive home during a strong market. I want to stress again the importance of dealing with your real estate agent early in the game to understand the true value of the foreclosed property and its value once restored in the current market.