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If you have been a reading this blog for a while, you know that we went through buying a foreclosure house a little over 3 years ago. I was so happy to find this great house in a neighborhood that we otherwise wouldn’t have been able to afford. It was in fairly decent shape, considering that it had sat vacant for at least a year or two prior to us purchasing it.
But, there were some things that needed to be repaired. The roof had small leaks here and there due to some major storm that hit. The air conditioning system was on its last leg. Two of the outdoor faucets were leaking and the water line for the refrigerator. There were a couple holes here and there that needed to be patched up. We did have to hire a home repair company like AON Innovations for a bunch of these problems and were thankful to get them all fixed in the one week between closing and school starting! The company is located in Frisco, Propser and Allen areas of Texas and offer great customer services and other repairs services such as dry wall, cabinet refinishing, roof repair and more!
Photo via AON Innovation
Here are the lessons I learned when purchasing a foreclosure:
Research Is Your BFF
I love all things real estate. We have made some great wins in real estate and we have failed in real estate. The house we are in is a win because it is a property that we have lived in for many years(3 yrs is a long time for us as of late). It is also a win because in 3 years we already have about $38,000 and our house values (on the low end estimate) around $255,000. We put about $10,000 down for the loan. So not a bad investment return on $10k right?
I’m including these numbers to stress the importance of researching the property you are interested in when buying a foreclosure. Luckily, I had some time before we were moving to research. In April 3 years ago, husband changed jobs to a city about an hour away from where we were living. That meant we had until the week before August to be either moved into a house or apartment before school started.
I went to work on Zillow trying to locate a house that fit our needs, budget, and maybe a little of our wishes too. This helped me understand an estimated price per square foot so that if I found a foreclosure, I would know if they were offering a ridiculous price or a fair price or below market price. Be sure to check out two other important factors when looking for an easier to flip house – school ratings and crime information. You know the three rules of real estate – location, location, location.
You can also research property history when buying a foreclosure or almost any property with the local county clerks office(depending on where you live). This can help you determine actual property size, estimate taxes you will have to pay, and more. And don’t forget to knock on the neighbors’ doors around the property. They’ll tell you more dirt about the place than is in the house’s front yard!
Photo via AON Innovation
Determine Your Timeline
We had a specific amount of time to get moved into a new place. The foreclosure I found was bank owned. SIGH. They were not in a hurry to sell. The listing price was maybe $10,000 under average for price per square foot. And there were repairs that needed to be corrected before move in which meant being able to schedule with a professional services company ahead of time. If the foreclosure you are checking out is bank owned, sit down, prop up your feet, and get ready for a potentially long wait. Our offer was put in around the beginning of May, and we didn’t even start negotiating price until end of June and finally closed around the end of July with one week to spare before starting school. Be sure to determine whether you can or cannot wait for the bank or other holder of the lien before going on your foreclosure adventure.
Pretend Like You Have No Emotions – Especially During Negotiations
For a lot of people, purchasing a home is an emotional one. I get that. But if you are thinking with your heart instead of your head when buying a foreclosure, you’re not as likely to get a good deal. Also, because we were dealing with a bank, we always started with an “insult” offer which means ridiculously low. We knocked about 25% off the price of the house to make our initial offer. I wouldn’t do this with an individual seller but with a large bank owned property, we did. Their asking price was way too much with the repairs needed plus it had been in foreclosure for 3 years (we found out from the neighbors). They countered our offer with just like 2 or 3 grand off. This back and forth went on for about 5 iterations so that we talked it down about $30,000 until we all agreed. This generally would not happen with a normal house buying scenario. The owner we probably get so peeved they’d walk away. But with a bank, it worked out. If we had let our emotions take over, then we probably wouldn’t have been so steadfast with the negotiations and probably would have caved sooner.
Have a Contingency Plan
This house was the only one that I could find in our price range, filled all our needs, and was in the school zoning we wanted. We weren’t even sure if we were going to be staying in this town for the next couple years. Luckily, there are apartments just down the road that fit our needs as well. So if the negotiations hadn’t have worked out, we had a place to move into just in time for the school year. We probably would have relented sooner during the negotiations if the apartments hadn’t been an option.
Photo via AON Innovation
Budget For Repairs
Any time a house has sat empty for a long time there are going to be repairs to be made. Especially foreclosures. Luckily for us, the repairs we had to fix were normal wear and tear that any home goes through. But, with foreclosures, it’s like opening a present from grandma, you never know if you’re getting a pretty new piece of jewelry or another “days of the week” pack of underwear at 20 years old until you open it up. I have toured and learned of foreclosures like ours in pretty good shape and ones that had all the light fixtures removed, no appliances, and some that the electrical wiring had been stolen out of the walls. Yep, you read that correctly… out.of.the.walls. Be sure to budget and negotiate the house price with repairs in mind plus a little padding because there’s always something.
Buying a foreclosure can be a very rewarding endeavor but it can also end in disaster. Research will be one of the best ways to help yourself be successful but having a contingency plan is important as well. If you can lead with logic and forego emotions, you might just get the deal of the century! Good luck and let me know if you have any questions in the comments below.