Top 7 Forclosure Buying Mistakes
By Ray Newby
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The foreclosure market is hot with lots of activity and potential. Buying a foreclosure is relatively easy...getting a good deal is another thing. And lots of buyers find they've bitten off more than they can chew because they acted without the facts just the emotion.
- Time is money. Your time has a cost. Include the cost of time and your services in your cost structure especially if you are going to fix the foreclosure home. If you buy a home for $30,000 below the market, then with time and materials bring its value up $30,000, but then find you've put close to the $30,000 into the place what have you accomplished. And what makes you house more desirable to a buyer? Take your purchase cost, add your time and materials cost, and you must be below the market to have a good deal. That difference is really your profit.
- Never buy a foreclosure fixer-upper property if it is not at least 20 percent lower than comparables. This figure should be much higher in a declining market. And you must think of an exit strategyÖhow do you get out of this property. Are you prepared to keep the property and make monthly payments if it doesn't sell as fast as you expect. The best approach is to have a waiting buyer for the all new fixed up property. Without a buyer you're on the hook in a slow market.
- Check the volume of property transactions. Stay away from slow-moving areas. Selling your foreclosure property quickly is very important. There are always deals in every area. And if there is a ton of deals in one area that might be a good sign to look somewhere else. A bunch of empty homes in an area will keep property values low.
- If you're fixing up a property be sure that the value is going to improve based on your time and materials investment. Donít over invest, especially in a standard home. Some folks over improve a property thinking that they can get even more out of a property. That's a sure way to loose. Never try to be the best house on the block. Let your home be pulled up by the best house. You benefit without the cost investment.
- Consider the selling commission (up to 6 percent of the new value of the property) if you are not going to sell it yourself. The commission will come off the top so it's lost. Be sure you have enough room in the deal.
- If you canít sell the property and need to rent it out for awhile, will the rental income cover your mortgage payments? Itís best to know this before you purchase. A mistake here can mean the home will end up a foreclosure again...yours.
- Make sure youíre not caught up in the lure of a foreclosure property. It must be a very good deal or pass on it. Donít buy just to buy. There are foreclosure auctions where people try to out bid each other for a property. They get into the frenzy of the whole thing. And the truth is that all foreclosures are on the MLS and available all the time.
Ray Newby is a mortgage broker and property investor with over 30 years experience in the industry. Mr. Newby can be reached at firstname.lastname@example.org
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Article Submitted On: December 02, 2007