Buying foreclosed properties presents an opportunity for investors as well as someone looking to purchase a home, condo, or lot on which to build, for their personal use. Banks, Savings Institutions, Mortgage companies, Insurance Companies all end up with REO (Real estate owned) inventory that they need to sell to clear off their books. Many lenders will offer special financing to qualified buyers to facilitate a quick transaction.
It is important to thoroughly investigate potential purchases. Many foreclosed properties have been neglected and may need significant repairs or rehabilitation. Those costs need to be factored into the purchase price equation. Often vacant properties do not have water, electric or other utilities turned on so it may be difficult to determine whether there are plumbing leaks, electrical or air conditioning malfunctions or other deficiencies. When negotiating a contract on such properties include provisions for inspections with the utilities on before finalizing the transaction.
If the proposed foreclosure purchase is going to require repairs, make sure that you have enough money to adequately undertake the repairs and carry the negative cash flow during the repair process. Some lenders will include "rehabilitation funds" in the mortgage while others may not. Expect the unexpected. There are always surprises during any rehabilitation program, especially foreclosures.
Do your homework prior to entering into any contract. Check with the local zoning department to make sure that the property is still zoned and suitable for the use you intend. Not infrequently, local jurisdictions will rezone unoccupied property, particulary if there have been no utilities for some time. This is particularly likely if a neighborhood is undergoing considerable change or if a property had some special zoning exception "grandfathered". I auctioned a property for a lender in Jacksonville, FL that had been vacant and without utilites for 2 years. The property had been operated as a small aprtment building with eight (1 bedroom, 1 bath) apartments. In doing our auction preparation we found that the city had rezoned the property from multifamily to single family. We had to auction the property as a single family home. The purchaser had to spend considerable monies remodeling the house, to remove 7 kitchens and end up with a workable single family home. When the original lender made a mortgage on the 8 unit apartment building their "old" appraisal was for significantly more than the single family home was worth. Just because a foreclosure sounds cheap, it doesn't make it a good buy for you.
Les Bryant has been a licensed real estate broker, auctioneer, mortgage broker and building contractor in Florida for 30 years. For more information on buying or selling real estate visit www.realestators.com
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