Foreclosure Investing Checklist
Real estate investing in foreclosure homes can be a profitable endeavor. However, it does typically carry with it a pretty hefty learning curb for those who have never purchased properties for investment purposes. This by no means should deter you from foreclosure investing if you are genuinely interested in it. Instead, as with all investments you make, it should encourage you to proceed cautiously and research all options thoroughly before jumping in to the deep end of the pool so to speak.
There are several items you should mark off your real estate investing checklist of “things to do” before you start perusing the foreclosure listings in search of the right property. In fact, to be successful at foreclosure investing, you will need to take a few steps back in the process. You should start by:
Familiarizing yourself with the real estate market
A commonly asked question from new investors is “Where should I start?” The answer is with understanding the bigger picture. You have heard it several times before and it bears repeating because it is true. Real estate is cyclical. Become familiar with this cycle process in the area you are interested in buying. If you study the historical data available, chances are you will quickly be able to identify periods over time when the market rises, peaks, begins to fall and then starts the cycle over again. Furthermore, you can probably begin to estimate how long these cycles take, roughly when they may occur again and what factors have a direct influence on the real estate market.
This is extremely important because it will give you a better idea in determining which particular areas you should target and approximately when. Generally, investors like to buy ahead of an upward curve in the market. This means buying up and coming locations such as those close to areas that are currently experiencing redevelopment.
Even in a falling or stagnate market, there are foreclosure investing opportunities. For example, an investor may decide to target areas that noted the best levels of growth and profits early in a previous real estate cycle because those areas are likely to be among the first areas to become profitable again when the cycle begins to turn upward. This obviously takes a bit of work to figure out, but those who have done so often experience a high level of success.
Learning all you can about the foreclosure process
The foreclosure process varies from state to state. Therefore, it is essential that you know how that legal process works and what procedures must be followed before you start looking. Missteps caused by a lack of understanding of how the foreclosure process works can cost you money.
Setting a budget
Working without a realistic budget is like a tight rope walker working without a net. Both can potentially prove catastrophic if you do not know what you are doing. When drafting your budget, be sure to mentally walk yourself through the entire buying and selling process. In order to determine a realistic purchase price and ultimately your selling price, you have to factor in a variety of expenses that are often overlooked. You need to consider such things are closing costs, loan origination fees, renovation costs, holding costs (loan, taxes and utility payments you may have to pay while waiting for the property to sell), selling costs (possible realtor fees, advertising fees, etc.) and/or any capital gains taxes if incurred. All can potentially impact your profits.
While the idea of making money from foreclosure investing is an exciting and very doable investment strategy, be sure you do not find yourself caught up in the hype or buy in to any “get rich quick” schemes. Foreclosure investing can prove profitable if you take the time to learn the market and the process before you dive in.