Are homes in foreclosure as good of a deal as they seem?
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That is the auction starting price... All forclosed homes go to auction, and who knows, you may get lucky. I bought two houses on forclosure in Los Angeles a few years ago and, miraculously, no one showed up to bid against me. I got the two properties, which were side by side, in a prime area of Los Angeles, and the upside was about $400,000.
So step one is to look at home prices in your area and see what a four bedroom/ four bath is going for. A good place to get a good feel is realtor.com because you can take a look at properties in your area and very easily see what they're going for. Then look at the property itself, the bank that's selling will be honest so look for things like structural damage and asbestos and factor in the cost of repairs (add it to your purchase price).
Now, when it comes to making a purchasing decision, you need to make an accurate assessment of what you want to be in it for. If it's a great deal, you could probably buy it, manage it and make money not only when the property goes up in value and by building equity, but also on the month to month cashflow... this is the best way to make money over the long haul (and is how many real estate moguls built the cornerstone of thier billions). However, managing properties is lots of headaches and requires that you be available 24/7 in case of emergencies. Now, if managing isn't your thing, if it's a good enough deal, you can always flip it. Flipping is more risky because you have transactional expenses and there's no guarantee your going to sell, so look at your local market and see if properties are being bought and sold at a steady pace. The last the you want to do is to hold on to something that's costing you every month, but isn't bringing any money in. You also don't want to manage the property if manging isn't your thing (of course, you can always turn to a management company, but it'll cost you about 5% of your gross, you'd still pay all the expenses, and you won't be able to manage costs as well, making positive cash flow less likely).
So look at the numbers and decide what you want. I'm a buy and hold kind of guy, you might be more inclined to flip. So, make a million or two. If you can manage positive cash flow right out the door, closing one a month over the course of a year (even at $20k a pop) will probably make you a millionaire in 5 to 10 years if you leverage your equity. Good luck.
I want to know how you find out about these deals?
Some are. Most foreclosed homes are in disrepair, bad neighborhoods, or both. Look around tho and see for yourself. You might find a real bargain.
they can be. Often you can get them for the remainder of the unpaid mortgage and whatever taxes are due. Banks aren't in the real estate business, they are owed a certain amount and expect to collect only that. So they auction the houses after the foreclosure starting with the amount owed as the price. I just bought a house before the forclosure through a realtor I know, the owner was just trying to get out from under it before any proceedings started and had a set price. I have already had offers almost 3 times what I paid for it but the value in the neigborhood is closer to 5 times that amount. The deals are everywhere and the only trick is timing. very often someone is happy to get out of foreclosure because by then it has gone too far anyway and they don't have time or can't put it on the market for some other reason.
One tip, get pre-approved by a bank or have the money handy because you usually have to jump right into it. No time to waste.
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