One of the first things that you learn about flipping houses is that you need to buy cheap. You don’t always get that opportunity when a house is being sold on the market. But a foreclosure home is different. The bank or lending institution has taken back the property because the homeowner couldn’t or didn’t make the payments anymore.
Very Motivated Seller
Home mortgage lenders are in the money business and they won’t want the hassle of having a foreclosed property on their hands. The longer they hold the home, the more money they lose. So they try to unload the home as quickly as possible. That means you can get a property for a whole lot less than you’d normally pay for it.
Where to Look
You can find foreclosed homes through multiple sources. They can be listed in the newspaper or at online real estate sites or other sites. You can also find them at local auctions as well as listed on bank and mortgage lending sites. The U.S. Department of Housing and Urban Development maintains a list for their foreclosures. You’ll want to look at the property before you buy it. Keep in mind that foreclosure homes are sold “as is” which means that you don’t get any kind of guarantee. Also, realize that not all foreclosed homes are open to an inside viewing.
Some people are reluctant to get involved with buying foreclosures when flipping houses because they think that means the house is in terrible condition. While that can sometimes be the case, more often than not, it isn’t. These homes could have minor issues such as needing to be cleaned and painted. Some may require more major repairs, such as foundation or plumbing problems. If you can’t get inside, always expect the worst possible scenario. For homes where you are able to check out the inside, it can be helpful to take a professional with you who can give you a rough estimate of the expenses that you’re looking at if you buy the property. An important gauge to see if the home might be worth buying is considering the discounted price and the comparable properties of the neighborhood that it’s in.
All About the Money
It is vital to know the budget you have when flipping houses. If you’re just going to break even, then it’s not a good deal. You need to know what the repair costs are going to be and stick close to that number. If you do go to an auction, don’t get caught up in the frenzy and go over your budgeted buying price.
Just like with any other flip, you have to rehab it fast and get it back on the market to get the most out of your investment. When buying and selling a foreclosed home, you have to figure in the price you pay to buy it, closing costs or fees, the amount of money you spend on fixing it, the selling costs and any taxes paid. Then you subtract that from what you turn around and sell the house for. That’s your profit amount. If you divide that profit amount by the total amount invested, that gives you a percentage figure for your return on investment. Be sure to account for the project lengths of potential house flipping investments. A project that brings in a higher return but takes twice as long to complete may not be as advantageous as an easier flip.