From Engineering on March 28, 2008 in General
With the current state of the housing market and the high amount of foreclosed homes available, you may be looking to remodel a foreclosed home. Before you get too enmeshed in the investment, you probably want to have a clear understanding of what you’re undertaking.
Make sure the property is completely yours. Before you even make an offer on a foreclosure, you want to be well-researched on the laws of your state. In some cases, the previous owner is allowed to repurchase the home even after you’ve already paid for it. All they have to do is come up with the amount you paid plus interest within the redemption period. Be sure not to invest any money on improvements until you are safely clear of this time-frame.
How to obtain financing. As long as your credit and income are strong, most lenders are more than happy to finance a renovation project on a previous foreclosure. The original holder of the note would probably be thrilled to have a qualified borrower take over the project and may extend a loan to you. There are also two different government insured loans available for rehabilitation projects. You can get the 203K Loan if you are an owner-occupant of a single-family dwelling; and this loan includes enough for the necessary repairs. The other option is the FHA Title 1 Loan which is only up to the amount of $25,000, and you must be able to match that amount with your own money or equity.
Don’t get in over your head. There are definitely plenty of “great deals” out there for the resourceful investor. However, there are a few potentially costly mistakes you need to carefully avoid in order to capitalize on that “steal.” As previously discussed in “Remodeling in today’s market, how far should you go”, be sure to have a solid figure in mind ahead of time as to the cost of the project. Location is always an important consideration in real estate purchases; be sure the neighborhood will support your effort. Have a realistic projection of the time needed to complete your project. If you are borrowing money, time is interest; and the longer your project takes, the less money you are going to make. Have your project well organized, and choose your contractor well in advance.
As with buying any fixer-upper, you have the potential to build equity quickly just by some smart investing and remodeling. Buying and renovating a foreclosure is no different, and can potentially become even more of a prosperous venture than normal.