Purchase of foreclosed property
I received an email today with questions and concerns about a foreclosure sale. Great questions, so I thought I’d post both the question and my answer below.
What is your experience with foreclosures?
I have a question for you, I am not new to real estate investing but I am new to the foreclosure auction process….
there is a property that will be auctioned next month in our court.
I applied for a pre-qual with a standard bank lender that won’t close until repairs are done after an appraisal.
I applied with a private lender who won’t give a loan until they figure out the repairs….
BUT I CAN’T ENTER THE HOUSE!
I have to bid unseen! How can I get financing? I can bid and put down a serious cash deposit but can’t take money out of pocket for repairs etc.
Plus, how do I evict people when I don’t own the house, if I win the bid and can’t judge the repairs until they’re done, how do I evict them if I’m not done financing and I can’t get financing until can i take them out and estimate the repair? round and round…
Any advice would be helpful. You generally need to have 6 figures in cash to play these auctions…
In all the years, all the houses and all the investors I know, buying at a foreclosure auction is one of the worst possible ways to buy. There are a number of reasons, including the ones you mentioned:
- You can’t go into the house to assess what needs to be done because the bank doesn’t own it yet.
- You have to work with a bank (the worst) and the rules are constantly changing and never in your favor.
- Don’t buy anything with a tenant in it if you can avoid it. When a house is foreclosed on, the owners are usually furious and want to shore it up, so they often destroy the property. In the end, this does not hurt the bank, only the buyer. We bought one where the foreclosed owners had sanded all the drains. There is no way to know this ahead of time.
- Periods of upset offers
- Most foreclosed properties are sold at full retail at auction.
- By the time they get to the auction, the good ones have been picked
- There’s a very real reason why banks don’t want to give you a loan to buy these…
So my advice to you is to attend all the local investor meetings you can to find properties to buy in better ways than these auctions. If a house is decently priced in a decent area, we find that end-buyers bid retail for it anyway. And once your bid is approved, there’s a 10-day “upset bid” period where anyone else can come in and outbid.
There is nothing good about foreclosure auctions. How to make them? don’t It’s much better to let it go into foreclosure and then buy from the listing real estate agent after you can view it.
What can you add? What is your experience with bank foreclosures?
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