How to Invest in Real Estate
Real Estate Investing - Foreclosures can be a good investment, but you really have to do your homework, when trying to purchase one.
When purchasing a foreclosure, there are no warranties, and not much information on its history, you have to be willing to do some research for yourself. It is like meeting a person for the first time, and not finding out anything about them. The listing basically had "little to none" in the way of information, other than the windows were recently replaced.
We purchased a foreclosure, and at one point, I wondered why it was, that I was doing all the running around, all the research, and yet writing cheques to other people for it!
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Investing in RealEestate - Our Story
My insurance agent gave me this checklist to get started which helped us out a lot. It is like checking out a potential employee, you want to know their background.
House Insurance - The information they needed took me a week to research, since you can't ask the former owners, and they seem nervous about it.
1. How old is the house? - (I researched building permits at the town hall to find out)
2. When was the roof last done? (My agent researched older listings from when the house was last for sale, and they mention having done the roof in 1994!) We were lucky on that one, since you don't have to register a permit to re-shingle your house!
3. Age of the wiring and plumbing? (I assumed the age of the house, although we did find aluminum wiring)
4. Has there ever been police to the house (ie: grow ops!)
I had to find all this out for my agent, and they want even more on a foreclosure.
Offers - You need to allow lots of time for this. We put in what we thought was a fair offer, based on the work needed in the house to update it, and we allowed them 48 hours to answer. It took them a week. Once the bank is in control of the house, it is given to their legal department, who have many other things are their plate, and don't seem to have the same urgency that we do! This is my opinion anyways!
So, then they would come back with a counter offer, and we then offered again, and it was another week before they answered! We did this for six weeks! The closing date had to keep changing.
We Chose to Be Landlords and Rent This Property
There are great books on the market that contain forms and advice if you plant on being your own landlord.
Luckily for us, we were planning this purchase as an investment for a rental property. So, we were not biting at the bit to move in. We learned that with real estate investing - foreclosures especially you need to be patient. When we finally agreed on a price, and got the keys, it felt like we had jumped through tons of hoops, but we knew we wanted that property. To be honest I think we beat out the other offers, because we were the most patient. Others gave up and found other properties!
If anyone had been waiting to move in, they would have been waiting a long time. I often wonder, why it would take so long at this point, especially totally ignoring our 48 hour conditions on the offers, sometimes taking 10 days to answer, to the point that we were looking at other properties, and yet I am sure the previous owner was hounded for that payment! Two different departments I guess!
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This is a business, and if you are purchasing this property for the long haul you have to count everything. These mortgage tables are handy to have and are a quick reference if you see a property that you want to act on.
Have a Good Lawyer
The other thing you have to make sure is that you have a good lawyer.
This part is important. Investing - foreclosures especially, need to have any leftover bills cleared for you. I assumed that if he was unable to pay the mortgage, that most likely there could be other debts attached to the house. This all needs to be cleared. The bank that took it over, is suppose to make sure of that, but you need a lawyer to make double sure.
Once you get the keys, you can breathe your sigh of relief, temporarily, as you now survey what you need to do. This took so long to get, that my fall project, didn't start until the first week of December, then we got hit with an early snow storm, so the idea of trying to cut the "too long grass" with the lawn mower didn't work, so got a crew in to do the best they could. Plus looks like the roof shingles, will have to hold out until spring.
The first thing I did when I got the key, was to rip out that paper that displays the previous owners name and sheriffs notice. The neighbors were getting sick of looking at that, and concern for their friend.
So, next rule, be nice to the neighbors, this was their friend, and you just took over their friends house. You don't know how it all ended, so you have to tread carefully here.
Once the bank has foreclosed on a property, they are suppose to do their best to get market value. So, if you are looking to get rock bottom prices investing foreclosures, that is not likely to happen, so you may not get it for a steal, but you will pay a fair price, if you are willing to wait and put the work in.