Buying a Foreclosure might be a smart move!

Buying a Foreclosure might be a smart move!

Why would you want to buy a foreclosure?

Because you can end up with TWICE as much equity than if you built a comparable house yourself, even as an owner/builder!

Note: By you contracting the improvement costs, you can save more!

There are some incredible “deals” out there, in almost every state in the nation. Some of these houses are very nice, and in good neighborhoods.

As soon as the inventory of foreclosed properties decreases (and it will!), this situation will change, but for now, banks are anxious to get rid of these houses.

Your home is an investment for you. Be a savvy homebuyer (investor).

This article from ReCasa Financial Group, an investment lender, suggests how savvy investors should determine the maximum that they will offer a bank that is trying to sell a foreclosure.

“CAN IT COMP?"

A GUIDE TO BUYING RIGHT

When evaluating a potential deal an investor must know if the deal makes sense. What should you bid? What is the maximum you can pay? By pulling sales comparables you can back your way into these numbers and walk away from a potentially bad deal. While sales comparables are not an exact science, it gives the investor the ability to determine worthwhile deals.

WHAT IS AN ACCURATE SALES COMPARABLE? An accurate sales comparable identifies recent sales of properties that are similar in terms of bedrooms, bathrooms, square footage and condition. The best comparable sale would be an exact duplicate of the subject property and would indicate, by the known selling price of the duplicate, the price for which the subject property could be sold. In general, they should be within a mile of the potential deal and less than one year old. In neighborhoods where blocks and streets can vary in value, be discerning in what an accurate comparable is. It is important to drive by the sales comparables to determine how your property compares.

If your rehab project includes adding a 3rd bedroom and a 2nd bathroom, be sure to pull comparable sales for what the completed project will be, not what it currently is.

STEPS TO BUYING RIGHT

Step 1: Investor identifies potential rehab project and gathers sales comparables and averages value.

Step 2: Investor estimates costs to bring property up to market value. To confirm costs, investor receives contractor quotes. Investor determines target profit number.

Step 3: Investor calculates purchase price.

PLUGGING THE NUMBERS:

Step 1: Property identified, average of 4 sales comparables are $150,000.

Step 2: Contractor estimates $25,000 in improvement costs.

(Note: By you contracting the improvement costs, you can save more! - Carl)

Step 3: Investor should set a minimum profit of 20%.

$150,000 x .80 = $120,000 Total amount that can be financed with 20% profit.

$7,000 Closing costs and other fees.

$120,000-$7,000-$25,000= $88,000 Subtracting closing costs & rehab costs.

To ensure a 20% profit, the maximum an investor should pay for the property in the about scenario is $88,000.

Investors additionally need to consider their carrying costs after the project is completed.

To best determine what possible carrying costs could be, look at the days on market for your sales comparables. The difference between 3 months and 6 months on the market can substantially affect your profitability.”

Be Savvy!

Buy right, and GET good advice from a Real Estate attorney and/or a Realtor!

Here are two great source links for finding foreclosures as well as information about how to buy foreclosed properties:

Nationwide Foreclosures!

Or: