Real estate is viewed by most people as a long-term investment, but it doesn’t have to be. Fix-and-flip projects can be incredibly lucrative short-term investments. These projects can yield a sizable return within a year or two in many cases, allowing the investor to realize and reinvest gains. Perhaps the most important aspect of optimizing your return for a fix-and-flip project is the property.
The competition for fix-and-flip homes is fierce in many markets. While the number of listings suitable for such an investment are limited if you search for properties through main avenues, there are numerous opportunities when you know where to look. How can you find homes for foreclosure for your next investment?
What to Know Before You Buy a Foreclosure
Of course, people won’t just let a lender foreclose on a property if they can avoid it. The previous owner of a foreclosed property has been embattled by financial issues. Often, the owners haven’t had cash to properly care for their homes. These are homes that haven’t been updated or maintained, which creates exciting opportunities for investors. Some elbow grease and love turns these properties into cash cows in a matter of months.
The foreclosure process enables banks and other entities, such as the IRS, to recoup funds. However, these entities don’t want to manage and own real estate. They want to sell these properties quickly to convert the assets to cash. In addition, they don’t want to invest cash to fix a property up before selling it. They sell properties as-is. Because of all of these factors, foreclosures are listed at a drastically reduced price compared to market value. For investors looking for fix-and-flip opportunities, foreclosed properties can be lucrative. The first step is learning how to find homes in foreclosure.
How to Find Foreclosed Homes
Foreclosures are just a very tiny fraction of the total number of listings on the market at any given time. If you aren’t sure where to look, finding foreclosed homes with upside potential can seem like searching for a needle in a haystack. So, where can you find a good supply of foreclosure listings?
Work with a Foreclosure Real Estate Agent
The MLS is, of course, the primary tool that real estate agents use to assist with home searches. The search function on the MLS makes it easy for any Realtor to pick out at least a few foreclosures for their clients to consider. However, the MLS is just one of many resources. If you want to know how to find houses in foreclosure, you need an agent who looks beyond the MLS. Agents who specialize in foreclosures offer true value. They may be more creative in their search for properties that meet your needs. They may have industry connections that other real estate agents lack. In addition, their knowledge of these transactions can benefit you far beyond the search for foreclosed homes.
Review Public Legal Notices
When a foreclosure is filed, a public notice of the action must be made. The most common place for these notices to be made is in the local newspaper. The notices often also include dates for auctions as well as companies handling the auctions. These are often local companies, so the public legal notices are a smart place to identify the major players in your market. You can then visit these companies’ websites to search for information about other foreclosures that they are involved in.
Look for Bank Listings
Major banks sometimes manage the sale of their foreclosed properties in-house. When this is the case, they typically have a website with their listings that you can search through. Often, these are detailed listings that include photos, contact information and detailed property descriptions. Where can you find bank owned properties? Bank of America and CitiBank are good starting points.
Search the Multiple Listing Service (MLS)
To directly access the MLS, you must be a Realtor. However, there are several third-party websites that grant access to the general public. The MLS has comprehensive search features, which enables you to pare down your search to only properties in foreclosure. Be aware, though, that many foreclosures are not listed on the MLS.
Consider Government Agencies
The same government agencies that make home ownership a reality for many people are also excellent resources when you’re searching for foreclosure listings. If you’re wondering how to find foreclosures, these government agencies are a treasure trove.
Department of Housing and Urban Development: The HUD offers both FHA and Section 184 loans. While the qualifications differ, both programs are suited for credit-challenged home buyers who may not have a lot of money for a down payment. The HUD website has listings for foreclosures under both programs.
Fannie Mae and Freddie Mac: Both Fannie Mae and Freddie Mac are regulated by the Housing and Urban Development, but they are stand-alone government-sponsored enterprises. Foreclosed Fannie Mae homes are listed at HomePath.com. FreddieMac foreclosures are listed at HomeSteps.com.
Department of Agriculture: USDA home loans generally are made for rural properties. While these may not be the most ideal options for investors, it is worthwhile to search their website for foreclosures.
Department of Veterans Affairs: VA loan requirements usually include a credit score as low as 620. Higher debt-to-income ratios are considered, and applicants are not required to put money down. While the VA takes steps to help veterans struggling financially to remain in their homes, foreclosed properties are available for sale through its REO program.
FDIC: The FDIC takes control of assets from failed banks. These assets include residential and commercial properties as well as land.
IRS: The IRS has the power to seize assets to recover unpaid taxes. It sells the seized assets online. These assets include real estate and others.
Free-to-Use Websites
Some of the most mainstream real estate websites can be used to find foreclosure properties. In fact, websites like Realtor.com, Equator.com and Zillow.com have direct search or filter functions, allowing you to easily identify the foreclosed properties in your search area. While these are free websites, you may need to register to access some features.
Look Into Auctions
Not every foreclosure is listed on the MLS or the other platforms already mentioned. Some foreclosure auctions are held on courtroom steps after the public notice is made. Others are handled through third parties. Some of these auctioneers include Auction.com, J.P. King, United Country Auction Services, Williams & Williams and Bid4Assets. While auction.com has a broad selection of foreclosures for you to browse through, others are specialized. For example, J.P. King focuses on luxury properties. Bid4Assets.com includes county tax sale properties and properties seized by the government.
Pay to Find Foreclosed Homes
While there are many ways to find a foreclosed property at no cost, there are a few paid services to consider as well. Foreclosure.com and RealtyTrac are examples of these sites. Both offer a free initial trial, enabling you to test the services to see if they are worth the investment.
Explore Pre-Foreclosure Listings
Well before a homeowner loses his or her home to foreclosure, the lender sends late payment notices. These give way to pending foreclosure notices. Struggling homeowners look for ways to avoid foreclosure. Selling their house in pre-foreclosure could let them keep some of their equity and avoid the ding to their credit score. Because the sellers are eager, investors can often negotiate a good deal. In some cases, an owner will sell a property for less than is owed. These are called short sales. As you explore listings, you may identify some that are marketed as short sales.
Explore Short-Term Financing for Foreclosed Properties
At the end of the day, your return on buying a foreclosed home is heavily tied to financing. Financing affects the cost of holding the property, and it could extend to the cost of repairs and improvements. At Macoy Capital, we work with our clients to structure financing that suits their needs. To learn more about short-term financing options, contact us today.
