A great way to make good money in real estate is to buy foreclosure homes. But when you buy foreclosure homes, make sure you’re really getting a deal. Here are three things to consider.
Buy foreclosure homes that have a likelihood of long-term appreciation. Since the real estate market can be unpredictable, it’s best to look at long-term area trends in an area with steady growth, and buy foreclosure homes that are likely to hold their value over time. This is true even if you’re planning to buy foreclosure homes and flip them, because the investor you sell your deal to will be taking this into consideration.
How do you know when a foreclosure home is likely to have long-term appreciation? It all boils down to the old saying in real estate: “location, location, location” which means to buy only in good locations. Ideally, you would buy in a neighborhood that is very close to jobs that pay well, good schools, restaurants, and shopping. Many middle class neighborhoods fit this description.
Buy foreclosures that have equity. This seems obvious, doesn’t it? You would be surprised at how many real estate investors make the mistake of getting carried away when making an offer. Maybe they feel like they will be outbid by another investor. Maybe they just like the house personally. Whatever the reason, if you pay more than you should for a foreclosure home, you will be lucky to turn a profit.
There is an old saying in real estate investing: “You make all of your money when you buy the house, not when you sell it”. Think carefully about that saying for a moment and never forget it.
Buy foreclosures that will give you the type of cash flow or profit you need. If your plan is to buy foreclosure homes with the idea of making steady rental income from them, you need to examine the local rental market. You also need to consider what your monthly payment on the mortgage will be, as well as the interest rate of the financing and real estate taxes. And if your intent is to buy foreclosure homes and flip them immediately, be sure that any repair costs will not eat up your profit. You should also examine the local real estate market; invest only in properties that you’ll be able to sell easily and still make a profit.
These are three primary items to consider before you buy foreclosure homes. Keep them in mind, and you’ll be much more likely to buy foreclosures that will yield a good profit.