Money Matters: Tips For Investing In Troubled Homes

Each month we seem to hear news about the foreclosure rates and the dismal housing market. It might seem to some individuals with money that now is the perfect time to buy property. First, with real estate prices lower, a good deal might be had. Second, there are banks and individuals who are eager to unload property and the obligation associated with it.

However, buying foreclosed property is not without risk. Here are a few of the points to consider before taking the plunge:

Learn how foreclosure works. Foreclosure happens when a buyer defaults on their payments, and the lender takes legal steps to take the property back. Rules vary from state to state, but generally some type of public notice is needed. Reviewing these public notices is a good place to start looking for property.

Pre-foreclosure sales are attractive but tough to close. With so many homeowners struggling with payments, pre-foreclosures or short sale transactions are common. These types of sales are tough to close. Short sales allow a homeowner to sell their home for less than their mortgage as long as the lender agrees. Working with real estate agents to reduce their commissions is another obstacle involved with these types of transactions. Finally, some states have tight timelines; the deal must close within days rather than months. Know the state’s law in this area.

Learn when you can buy foreclosure properties. Buyers can come in during pre-foreclosure. They may also come in after the lender has foreclosed and has the property on its books. The final way is at auction. Each way has its own process for inspecting the property. Learn the rules and consider watching as a bystander before putting any money into the game. Most of these properties are sold “as is.” For example, if the septic system is bad, or there are tax liens on the property, it’s your problem.

Borrowing to invest. Lenders are becoming stricter with loans so this might not be possible. If an individual is borrowing to buy, make certain there is a reserve. For example, there might be the unexpected repair. If funds have already been borrowed, access to additional funds to fix up the home might not be available.

Discuss with a financial professional. As a final point, potential investors might want to discuss the possibilities with a tax planner or other financial professional before buying property. The more that is known about these types of investments, the better the potential for a successful outcome.

Source: WMUR