Talk to any successful real estate investor and they’ll tell you that when it comes to foreclosures, the old saying, “you don’t know what you don’t know,” holds true.
Over time, you’ll be able to spot small issues before they become big problems but, until you’ve flipped a few, think of foreclosures as high risk, high reward investments… And you want to minimize your risk!
But first, how do you find a foreclosure?
Well, there are a couple ways.
One option is to drive through neighborhoods you’ve targeted and look for auction notices on front doors. You’ve probably seen these papers posted before. If the notice is new, there’s a chance you could still make an offer to the bank and buy on the cheap.
You can also use Realeflow’s lead generation tool to refine your search. Our software lets you target leads in 8 categories, including Absentee Owner Leads, Free & Clear Leads, High Equity Leads, Low Equity Leads, Upside Down Leads, Cash Buyer Leads, Private Lender Leads, and Probate Leads. You can also search by geography, filter by property type, and see public records for the property, all in one place.
Finding a property is the easy part. The hard part is making sure it’s a worthwhile investment.
With each foreclosure you consider, ask yourself these 5 questions:
- Is the margin worth the madness? 💰
Here’s something you might not expect to read on a blog about buying foreclosures: Maybe buying a foreclosure isn’t your best bet. The answer to this question is dependent on a lot of factors, but it’s worth asking. In some markets, you can make the same margin on a traditional sale and skip dealing with banks, liens, probate courts, etc. However, if the highest margin to be made in your region is in foreclosures, skip to step 2!
- Who do I need to bring to the table? 💼
There are several property types that fall into the foreclosure category: pre-foreclosure, short sale, and bank owned. In each of these scenarios, you’re dealing with local laws and possibly even litigation. If you’re not a real estate agent or a lawyer, you probably want one or both working with you, especially at first. This doesn’t have to be a forever thing, but until you close a few, you want to avoid the legal pitfalls that come with foreclosures.
- Have I done my due diligence? 🤓🔍
A rookie mistake is skipping the inspection. Time after time, buyers lose when they become the seller. You don’t want to uncover unexpected expenses between finding your property and flipping it. Find a local home inspector, form a relationship, and have him or her walk every potential deal. Just like question #2, this might not be forever. Once you’ve flipped dozens of properties, maybe you’ll feel comfortable doing your own inspections… But remember, almost nothing beats the “been there, done that” experience of a paid professional.
- Can I talk the talk? 🗣️
Pro-tip: that real estate agent, lawyer, and home inspector all speak different languages. There’s some overlap, and you might know some of it, but you don’t know all of it. The real estate investor that knows the language of the professional they’re dealing with works faster and more efficiently. They’re also much more likely to keep compliant. Here’s my advice: find professionals that are truly passionate about what they do. Passionate people want to share that passion. Ask them to walk you through every step (or every property). Take notes and ask questions. Over time, you’ll learn their language.
- How fast will it move? ⚡
This comes down to knowing your market. You don’t want to lose in the last step. Once you’ve found a foreclosure, gotten your inspection, purchased the property, made your repairs, and renovated, it’s time to list… But the last thing you want is to continue to pay the mortgage while it sits. There are two big factors here: 1. Flip it for the market and 2. Price it for the market. Don’t waste margin installing upgrades that won’t be appreciated, or don’t fit the market that you’re in, and make sure you’re priced to sell. Foreclosures often take more time to buy, so you need to make up for that on the back end.
Lots of real estate investors have found their freedom in foreclosures. If you’re ready to take the risk, we bet you’ll reap the reward… So long as you’re asking yourself these 5 questions!
Did we forget any? Share your experience in the comment section below.
We've also put together a Home Repair Estimator to help you get started. This is designed to systematically guide you through each property's interior and exterior repairs in a single walkthrough. Pick up your free copy below. 👇