Choosing houses for investment goals can yield a very good return if done the right way. With the wide range of foreclosures, evicted homeowners need a home to live in. Choosing affordable housing is often difficult because homeowners of foreclosed properties suffer substantial credit damage and are often labeled buyers with poor credit.
Right now, many investors are buying residences to use as rental properties and looking to rent them to foreclosed owners. Many investors also add incentives like owner financing to help retain tenants long-term. Owner transfer financing allows negative credit borrowers the opportunity to rebuild credit and become eligible for new financing within two to three years of foreclosures.
Buying foreclosed homes can preserve investors’ money, assuming the home is not in disrepair. One option is to purchase Fannie Mae Homepath residences. This government-sponsored program was created to pay off money tied up in properties repurchased as a result of lenders with mortgages insured through Fannie Mae.
Most of the properties offered for profit through the Fannie Mae Homepath are eligible for government grants through HUD’s Neighborhood Stabilization Program. Grant funds are available to rehabilitate homes or create vacant lots in locations with skyrocketing foreclosure costs. Combined with price gouging and special higher education options offered through the Fannie Mae Homepath Loan, investors can save thousands of dollars off the price of home ownership.
An additional option for choosing homes at discount prices is to find homes sold under real estate short sale contracts. When homeowners face foreclosure and struggle to cure mortgage debt to keep their home, lenders sometimes allow them to sell the home “for less” than the mortgage loan balance.
Short selling is mostly a complex process, but it is worth the effort if done correctly. Most homes offered through short sales are generally in good condition or require only minimal repairs. Real estate investors able to buy short sale properties with cash can further reduce the sale price and can close very quickly.
When buying homes on short sale, it’s much better to retain the services of a short sale specialist or real estate agent familiar with this particular type of sale. These homes are sold through a lender’s loss mitigation department and will often require buyers to complete substantial paperwork. Due to the fact that banks are taking a loss by accepting a lower payment, they generally tend not to negotiate the amount of the sale.
Foreclosure homes can be purchased through public auction or directly from loan companies. Selecting a home through an auction involves submitting bids as well as providing funds for the home shortly after the bid is accepted. When homes tend not to sell at auction, they can be returned to the mortgage lender and listed for purchase through bank loss mitigation or local realtors.
Real estate agents are an excellent resource for locating foreclosed real estate. In addition, buyers must calculate the increased cost of purchasing foreclosed homes through the realtor to include the agent’s commission.
Bank-owned homes generally command a higher price than foreclosures offered through auction. On the other hand, lenders work to remove liens that could slow down the home’s transfer mechanism or add additional costs to the home’s price. Loan companies will also actively evict foreclosed homeowners who do not vacate the home.
Foreclosures purchased through auctions, traditional bank-owned properties, and short-sale real estate are sold on an ‘as is’ basis. It is important for buyers to do their own due diligence to determine the true cost of the home. At a minimum, investors should obtain a broker price opinion evaluation and a real estate inspection.
Real estate investors who obtain traditional bank financing for investment properties must be financially prepared to pay mortgage loan repayments if the home is not rented within a reasonable period of time or if tenants refuse to pay rent.
Investors should evaluate all available options to generate profits from rental property. Options could include using the home as a vacation rental, exchanging the home through 1031 like-type exchanges, giving transferable mortgages to the seller, learning about Subject 2 contracts, granting purchase option agreements rental and also the use of the home for Section 8 subsidized housing.
