How to Buy Foreclosures

A foreclosure occurs when a homeowner defaults on his or her mortgage payments. Since 2008, foreclosures have been very common in the United States and are typically tragic in nature.Luckily, there is a silver lining to all of this. As a house flipper, you can buy these properties and perhaps profit substantially in the process. Below is a guide listing the basic steps describing how you can be successful when buying foreclosures.


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    Find Upcoming Foreclosure Auctions. When a homeowner fails to make their mortgage payments, the lender (usually a bank) will quickly auction off the home. One of the most useful tools to find these auctions is the official website of the U.S. Department of Housing and Urban Development. Also, you could try contacting your county courthouse, contacting the lenders directly, or by looking in the newspaper for listings.
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    Check Out The Property. Once you find a house that is to be auctioned off soon, you should always visit the property in person to see what sort of condition it is in. You will most likely not be able to look at the inside of the house, but you can at least look at the exterior and peer into the windows. While this is certainly not a perfect way of determining the value of a home, you can at least gauge what sort of neighborhood the house is in and look to see what sort of exterior improvements need to be made, like a new roof.
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    Ask The Neighbors. Because you will not be able to look inside, there is considerable risk involved with purchasing a foreclosed property. A good way to minimize some of the risk is by talking to the neighbors in the area. Sometimes, the neighbors can tell you about what sort of people used to live in the house and give you an idea of what some potential damages there might be. Maybe the previous owners had thirty cats and there might be some animal damage. Or maybe there was even a small fire in the past and you might have to deal with fire damage. This system isn't perfect, but is worth the time to investigate.
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    Settle On A Maximum Bid In Advance. Auctions can often be places where everyone is yelling and emotions are running high. A rookie mistake is to let these emotions get to you. Sometimes, competitiveness outweighs common sense and you end up bidding more than you should. Any easy way to avoid this is by deciding what the highest you are willing to bid is before you even go to the courthouse. You should never pay more that 70% of the ARV, or "after repair value" of the home. If you do, you might run the risk of making no profit, or even losing money on your house flipping project. If the bid exceeds your predetermined price range, don't sweat it. There are always plenty more fish in the sea to choose from.
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    If All Else Fails, Buy An REO Property. Sometimes, you can't always find the right property for the right price at a foreclosure auction. However, you shouldn't let this discourage you. You might want to consider buying an REO property instead. An REO, or "real estate owned, property is a house that has failed to sell at a foreclosure auction and is owned by the lender. The lender usually wants to get the property off their hands as quickly as possible because they are losing money through the house's insurance, utilities and maintenance. This means, that you should be able to buy the house at well below market value.


  • While you cannot look at the interior of a foreclosed home, you an however look inside an REO property.
  • Always use the 70% Rule when purchasing real estate.


  • Because you cannot look at the interior of a foreclosed house, there is considerable risk involved. Find out as much as you can about the property before you buy it.
  • The lenders do not know the condition that their REO houses are in when they sell them to you. Make sure you get the home inspected before finalizing any deal.

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Categories: Buying Property | Real Estate