Ten Mistakes to Avoid When Buying Foreclosures

April 15, 2010 | Posted by admin | 4 Comment(s)

While many Americans may not have the time or inclination to delve into the world of foreclosure flipping, savvy investors are ready and willing to take the risks and rewards that come with buying foreclosed homes and becoming property flippers.

Fortunately, there are some actions you can take that can enable you to resell the property within a six-month time-frame. This is especially useful in communities where a buyer is legally barred from re-selling the property before that time.

Buying foreclosures for profit, as you know requires skill and patience. However, in order to most successful at foreclosure flipping, it’s important to be aware of the common mistakes many newcomers first make when buying foreclosed properties. As a savvy property flipper, you may very well be among those who run with the wolves – but don't get too overconfident or overly ambitious. Even the wild timber wolf knows better than to make simple mistakes that can land them in hot water.

Buying foreclosed homes in an unstable economy comes with certain risks. While it may seem like buying a foreclosure is once-in-a-lifetime opportunity you need to be careful and think all of your decisions through thoroughly. Plunge ahead blindly, you may wind up with nothing at all, which is why we urge you to keep the following in mind and avoid these mistakes when buying foreclosed properties.

Number 1: Don't Go It Alone

Remember that wolves hunt and run their prey to ground as a pack, operating cooperatively. Buying a foreclosed home is not like a regular home purchase; the rules and regulations are complex and require the assistance of a professional realtor with experience in the sale of foreclosed homes.

Number 2: Do Your Homework

While some realtors have legal experience, most do not. You should therefore not only school yourself in laws pertaining to foreclosure, but consider getting legal help as well. Most realtors have relationships with or know of legal professionals who can be of great assistance in this area; feel free to contact any of the real estate agents who are members of our network here at NFAFN.com/

Number 3: Plan For The Long Haul

The banks who engineered the current economy have also determined that homes should also decrease in value. This trend has been going on since the federal government forced taxpayers to shore up these banks, which have profited greatly – but could cost you big money if you don't move carefully and think for the long term. Property values in many markets may continue to decline. If you are looking for a "quick flip" for big profits but are not in a position to afford a fully amortized fixed-rate mortgage, you may want to reconsider buying a foreclosed home.

Number 4: Consider the Hidden Costs

You may get big eyes at a selling price on a property that was priced substantially higher only a few years ago – but keep in mind that equally substantial repairs and renovations may be required. A good rule of thumb is to make sure you have an amount equal to 10% of the purchase price in reserve to cover any necessary repairs.

Number 6: Focus

With the sheer number of foreclosed properties on the market, you may feel like the proverbial horse loose in the grain barn – but remember that horses don't know when to stop eating grain and can injure or even kill themselves. You need to have a plan in place, narrow your focus to a specific market, work with a qualified agent – and above all, be patient and methodical. Chances are excellent that you will find some great deals as long as you move with caution.

Number 7: Get it Inspected

When you purchase a foreclosed home, you are buying it "as-is." For reasons that should be obvious, a bank or other lender is not going to offer to repair anything. Hire a home inspector to check out the property thoroughly before committing to the sale (or find out if such an inspection has been done).

Number 8: Get Pre-Approved

Once the terms of the sale have been agreed to, foreclosure sales tend to move quickly. For this reason, it is vital to have funding in place beforehand; you will have minimal time to arrange financing.

Number 9: Shop Around for Financing

Currently there are choices and some competition among lenders – including smaller, regional banks and mortgage companies. One of the advantages of belonging to NFAFN.com is that you can do mortgage shopping ahead of time and make certain you are getting the best deal possible.

Number 10: Make Sure There Are No Encumbrances

This too should seem obvious, but it bears pointing out. Keep in mind that those who lose their homes may have been irresponsible in more ways than one; there may be contractor liens, tax liens or any number of other claims against the property. If you are not aware of these, they may very well become your headache. Do your due diligence and search public records ahead of time.