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. Read on for 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. In my observation, more often than not, the foreclosing bank will bid the price up and buy it itself to eventually place 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.
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 banks have less financial incentive to do so. However, you will still see short sale situations pop up onAuction.com or Hubzu.com prior to the home going to sheriff sale. In my experience, these seldom result in great deals today as the goal is to try one last time to make the bank whole.
Properties Listed In The Local MLS
Properties listed by real estate agents 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 A 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 its affiliated website. 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 Nonprofits Versus 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 nonprofit organizations. Generally, the time frame is one week to 21 days. They will sometimes dictate another owner occupant period after a price reduction.
It is illegal to attempt buy a home as an owner occupant if you are not an owner occupant. If you own investment 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 can be substantial and not worth risking.
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 also lists properties that are in foreclosure based on public records but are not yet for sale. The challenge 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 MLS to set up an email flash so that whenever a property is listed that meets your purchase criteria, you will be notified via email immediately. I firmly believe that there is no substitute for a relationship with an experienced real estate professional who knows your goals and the local market.