As always I urge my readers to read the page on getting a mentor. There’s no substitute to having a knowledgeable resource who can hold your hand and take you step by step, for at least the first few deals.
We are going to talk about buying a bank foreclosure. Later, we’ll talk about buying a HUD home. We talked about buying directly at the county auction and why I don’t like to do it before.
Buying a bank foreclosure
A bank foreclosure is a privately owned property. The bank got possession rights at the county foreclosure and are now selling their asset. The asset is typically distressed but not always. The property condition sometimes reflects that distress but not always. We’ll go through the steps at a high level in this post. I will get into the details of every step in subsequent posts.
1. Ask your agent to send you foreclosures in your price range EVERY DAY. Agents can set automated searches or you can search on your own on a page like this. You and your mentor should discuss what areas you are going to buy properties in.
2. Select the properties that appeal to you. Use criteria that’s investment savvy, not emotional while creating this short list. Ask your agent to run “comps” or comparative market analysis to see which ones are good deals.
3. Offer! What? Don’t I need to see them first? No. Just make the offer. If the numbers make sense, what else are you going to see? Be an investor. There are instances where you want to go see the property first and I’ll get into that when I explain this step.
4. Let’s assume your offer gets accepted. Now, visit the property with your agent and your mentor. At least for the first few properties you want to take your mentor. Prepare the rehab estimate. Your mentor will tell you if you need a licensed inspector to inspect your property. Get the results from the inspector (if there was one) and adjust your rehab estimate.
5. Call your loan officer and discuss the details. See if they have an option to finance the purchase, the closing costs and the repairs. Make sure they can get you into a lower rate loan once the repairs are complete. Get your agent to send your offer documents to your loan officer. At this point, you may have to fill a Uniform Residential Loan Application and they will have to pull your credit if they have not already.
6. Prepare for your rehab. Line up your contractors. Research materials. Place orders for items where there’s a lead time (make sure you can cancel with no penalty). You must be all set to go on DAY ONE of ownership.
7. Close on the loan and take possession. Change the locks on day of closing. Install a lockbox for people you are going to authorize. Install a “Coming Soon” sign and start marketing the property.