4 Things to Consider When Buying Foreclosed Properties

If you are interested in buying properties, don’t be afraid to consider purchasing foreclosed properties.

Here are 4 tips that will help you decide whether foreclosed properties would be good for you or not:

1. Upgrading is the way to make extra money

If you are looking to buy properties other than raw or farmland, foreclosed properties with buildings and infrastructure would necessarily mean repairs. Accept that repairs are a must. It can actually give you an opportunity to make money. But after a successful upgrade, your return of investment can be twice or higher—depending on the location of the property—than the cost of the repairs. An upgrade necessarily translates to a higher market value, a greater equity. You should strive to have this appreciation towards the current market value of nearby properties.

• When the selling price is far lower than the market value, it is often that the repairs will be high.
• It is best to have repairs that are not long term and can be completed in 30 days or less. With just a month or less on repairs, you can immediately start with your cash flow as you can then start selling or renting out the property.
• With a short duration on repairs, you avoid holding costs. If it is a condominium, you would need to leave a bond and that is additional money that stays dormant. At times getting back this bond after repairs have been completed entails several months to a year.
• If a foreclosed property will require extensive repairs, do walk away from them.  They were somebody’s nonperforming assets before; do not make them your own now.

2. Huge Savings in Auctions.

Banks, as a rule, do not accept the first offer made on a foreclosed property. Banks would often have several bids from a real estate auction.

In these auctions, you are likely to encounter reduced down payments. This spells huge savings, as most often than not, you would need to shell out only 5 to 10%, as opposed to paying 20% down payment for a new condo unit.

• Depending on the bank, your monthly payments would usually be lower than those required for new properties. You gain extra if you plan to rent out the property as this would generate its own income for your mortgage.
• If there is no bidding, try to negotiate for a lowered amount than is published. Several firms offer 30% discount if you are willing to make cash payments. Protect yourself from fluctuating interest rates if you are dealing with a bank. Ask for a cap on the interest rates.
• Finding foreclosed properties is an art. You would need to not only consider the nonperforming assets of banks, and insurance firms, but also government financial institutions, like the National Housing Authority, Social Security System, Home Development Mutual Fund, and even the Bangko Sentral ng Pilipinas. They have websites that publish these lists or you can email ask for the latest list.

3. Never buy without inspecting the Property

Since you are hunting for good bargains in foreclosures, you need to diligently conduct ocular inspections. These are properties that you need to estimate for repairs so don’t rely on photos alone.

• Bring along an experienced appraiser who can help you decide how much repair is necessary.
• Bring a checklist of things to look out for like cracks on the wall indicative of nearby faults and termite infestation.
• Before making a bid, as part of your due diligence, make a research of the market value of properties in the neighborhood. Ask a friend to pose as a buyer to know your potential neighbor’s lot value so that you have a good estimate for your bid.

4. Payments in 30 days

You need to be liquid before the bidding starts as down payments are usually made within 30 days. You will also be paying taxes (transfer tax, documentary stamps tax) and other related costs, like notarial fees, insurance fees, association dues and registration fees.

There are real payoffs in buying foreclosed properties, so go ahead and consider them.

 If you are looking for places for your new investments, check our wide array of residential listings.

—

This article is contributed by Marie, a Hoppler broker.