Making Money on a Foreclosure Home
You probably already know that most foreclosure homes are a steal at
30-50% below their market value.
And with creative Housing and Urban Development (HUD) home
financing, you can even make more money off of your foreclosure
property.
First, you’ll need to purchase a foreclosure home in need of over
$5,000 worth of repairs. When a property meets this standard, you
can apply for a 203k loan, which is insured by the Federal Housing
Administration (FHA) to finance repairs on your foreclosure home.
203k loans let you borrow a predetermined amount of money to not
only repair your foreclosure home, but to change floor plans,
modernize bathrooms and kitchens, and customize and improve almost
any other feature of your foreclosure home. You can already profit
from your investment by using this loan to make alterations that
increase your foreclosure property’s value, but here’s where you
make a really quick turnaround – the 203k loan allows you to bill
yourself for hours worked on your own home.
Features like this – and being able to skip up to eight months of
payments – make a 203k loan similar to private construction loans.
And while 203k loans are slightly more expensive and complicated
than most other FHA loans, the benefits you reap – including the
savings when compared to a private mortgage – make 203k loans worth
looking into.
With financial perks like that, acquiring foreclosure properties is
a smart way to start building your real estate portfolio. So while
you’ll want to move fast, you’ll need to act carefully and never
rush into anything. As with any financial investment, you need to
understand the choices you’re making and why you’re making them, as
your decisions may have long-term affects on your growing real
estate portfolio, and your finances in general.
So before you jump into purchasing real estate, ask yourself some
questions about your investment goals, the responsibilities you’re
willing to take on, and your current financial situation.
• Why are you investing in real estate, and why foreclosure
properties specifically? What do you expect to gain from this
investment?
• What are your short-term real estate goals? How many properties
would you like to own in your first year of investing in
foreclosures? What are your long-term real estate goals? How many
properties would you like to own five to ten years from now?
• Also, you’ll need to check into your credit and do the math on
whether or not you can afford to take on more mortgages. Order a
credit report on yourself, and if your record could use some
improvement, start now.
• Similarly, you need to know how much cash you have available to
work with. When you’re able to offer a larger cash down payment on a
property, you have more leverage to bargain, and you’ll save quite a
bit of money with a smaller mortgage.
• Think about how much responsibility you’re willing to assume with
your new property. How much are you willing to invest in repairs?
Would you be able to take care of minor repairs and maintenance
yourself? Are you interested in renting, and would you be willing to
act as landlord?
Ask yourself these questions before you begin investing in your
foreclosure real estate portfolio, and don’t hesitate to pause and
ask yourself these questions months or years down the road. As you
continue to invest in foreclosure real estate property, even when
things are going very successfully you’ll still want to reevaluate
your current situation and your long-term goals, and make sure the
two are in sync with each other.
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