This article originally appeared in Forbes.
Foreclosed Properties Have Traditionally Been The Best Bets
There are a lot of misconceptions out there about what it takes to get a great investment property at the best possible price. In my experience, foreclosed properties have always offered the most house for the money. These purchases however are more complicated than buying a house from a private seller, and often not for the faint of heart. In this post , my goal is to give you the secrets you need to know to complete a bank owned property transaction.
Sheriff Sales Are Hit Or Miss At Best
Buying foreclosed properties at a foreclosure auction, or sheriff sale as they are commonly known, is a hit or miss prospect because more often than not the foreclosing bank will bid the price up and buy it themselves. The property will eventually come on the market as an REO property. REO stands for Real Estate Owned and is a term used by banks to refer to housing stock they have in their inventory. The other disadvantage of sheriff sales is that you cannot view the property before bidding. Estate auctions can sometimes yield good buys and you can generally view the property prior to making a bid.
Short Sales
Buying ‘short sales’ often worked well in the years immediately following the 2007 – 2008 housing crash. Most of the major national and regional banks and mortgage companies were willing to allow an owner of record to sell their property for less than was owed because it was cheaper to do that than to foreclose. Short sales are less likely to be completed today because the banks have less financial incentive to do so. However, you will still see short sale situations pop up on www.Auction.com or www.Hubzu.com prior to the home going to sheriff sale. In my experience these seldom result in great deals as the goal is to try one last time to make the bank whole.
Properties Listed In The Local MLS
Properties listed by Realtors® in the Multiple Listing Service (MLS) are by far the best method of sourcing great deals. All of the major government players including the Department of Housing and Urban Development (HUD), Fannie Mae and Freddie Mac list and sell their distressed properties with local real estate firms. Investment firms looking to sell properties they purchased as part of pool sales will list with local real estate firms as well.
The Purchase Process Is Nothing Like Sale With A Private Owner
The process for purchasing homes is different for each of these entities. HUD for instance only allows bids to be placed on the HUD affiliated website HUDHomestore.com. A real estate agent experienced in REO listings and sales will know what is required and can help you get to the closing table regardless of who the seller is.
Owner Occupants and Non-Profits VS Investors
HUD, Fannie Mae, and Freddie Mac all have an initial period of time where they will only accept offers from either certified owner occupants or non-profit organizations. Generally the time frame is a week to 21 days. They will sometimes dictate another owner occupant period after a price reduction.
It is a felony to attempt buy a home as an owner occupant if you are not an owner occupant. If you own property in your name, or in the name of an entity you control you will likely not be considered an owner occupant buyer. The penalties are severe. See below from HUDHomestore.com.
What are the penalties for a HUD Home owner-occupant purchaser that does not occupy the property?
When a purchaser buys a HUD Home as an owner-occupant, it is expected that the purchaser will live in the property, as his or her primary residence, for a minimum of 12 months. Intentional violation of this requirement could be punishable by a fine not to exceed $250,000 and/or a prison sentence of not more than two years.
For more information please visit http://www.HUDHomestore.com
Finding Out About the Best Deals First
A good listing agent will do everything they can to let their past clients know about a new property as soon as it goes on the market. Zillow.com also lists properties that are in foreclosure based on public records but are not yet for sale. The problem with these listings is there is no guarantee they will ever actually be listed for sale. You could be waiting a long time for some of these properties.
Your Buyer Agent Can Make Or Break You
The best REO agents have detailed knowledge of what is on the market regardless of who has them listed for sale. These agents tend to have great working relationships with other REO agents and can represent you when you wish to purchase a property. Your agent also has the ability through their Multiple Listing Service (MLS) to set up an email ‘flash’ for you. He or she can program your property preferences into the MLS and set it up so that whenever a property is listed which meets your purchase criteria, you will be notified via e-mail immediately. As I have written many times, there is no substitute for a relationship with an experienced real estate professional who knows your goals and the local market.
