We will discuss tons of material in these posts but there’s no substitute to getting a mentor who has done this a few times. So go here to read about it and get one first.
I mentioned before that as an investor you should spend more time looking at numbers than looking at properties. If you insist on looking at every property before you bid, then you are going to be driving around a lot and possibly wasting your time, your agent’s time and your mentor’s time. There are no blanket rules here, you must use your judgment.
So to help you decide, these are the things you must know:
1. HUD Homes: Before bidding on a HUD home, always visit the property with your agent and study it carefully. Be well aware of the numbers in that area: what the property’s normal value after repairs might be, what the rents are, what the taxes are, if there’s a HoA fee etc. Walk the property with your contractor or mentor and make sure you have a fairly good idea of what it’s going to cost to fix. HUD publishes a variety of reports and estimates on the property. Your agent has access to these. Study them and ask questions. You are buying a HUD home as an investor not as an “Owner Occupant”. HUD is not very forgiving to investors by policy and rightfully so. As an investor you are expected to know what you are getting into and take well judged risks. So, once you make and win a bid, you are expected to proceed with it. HUD will not return your earnest money if you back out and there is no “option period”. So absolutely visit HUD homes and study the deal closely before making the HUD bid. There is also no negotiation after bid acceptance. All bids are made online and if you don’t follow the rules, the contract will be canceled and the property placed back on market. The HUD bidding process is straightforward and direct. You do all your investigation before you bid, period.
2. Other Bank Foreclosures: For these, you may choose to make an offer site unseen. This process may be frowned upon – as there are several non serious investors or contract flippers (people who don’t intend to close, they just want to tie the property up) or there are investors who are not guided by a mentor, haven’t done the drive-arounds, haven’t carefully selected their area of operation and haven’t done any homework. Don’t be one of those. If you, on the other hand are well guided, know your area of operation, know your numbers, then you don’t need to go visit the property every time before you make an offer. As soon as the offer is accepted, visit the property and make sure there are no total surprises. You should expect the property to be distressed and you should have accounted for repair costs. Setup inspections and if there’s a condition that you did not expect, you can negotiate during the option period. If you terminate the contract during the option period (based on contracts you have signed), you will get your earnest money back. You will lose whatever option fee you paid. The option fee is often waived by many banks. The fee and the rules surrounding the option or inspection period will be stated in your contract and addenda paperwork.
3. No Blind Offers: Some listings will specifically tell you that you can’t submit blind offers. For those listings, don’t. There’s something they want you to see. You may choose to totally skip such listings. So the banks who insist on this may be limiting their audience. In fact, they may be excluding serious, repeat, expert investors. At some point as an investor you have seen everything. There’s a cost to fix anything and you know it. For such investors, driving around to see properties before the offer is made is often a waste of time.
4. You are Learning: Before you bid on any house, as you start your journey of real estate investing, you should visit several properties in various conditions in each area you want to invest it. Drive around the area, know the amenities, know the schools and talk to the neighbors. Your mentor should go with you and your agent should accompany you if you are going inside listed homes. Learn from them. Ask questions. At this point you are only learning your options; what it takes to do what and arriving at your comfort zone. This is the time to drive around, not when you are under time pressure to make an offer.
5. Online Tools: Google Street View is an awesome tool. I can’t believe that some Google engineer came up with the idea in a meeting: “Let’s fit a car with some cameras and drive on every street on the planet!” and they went for it. A great pioneering company of our times. Anyway, use Google tools such as Aeriel View, Earth and Street View. You can get a good feel for the yard size, property orientation, what’s behind it, how much traffic the property gets etc. Use other tools like Zillow, tax records and realtor.com. Your agent can send you a customer report that has a lot of information about the property with its pictures and map. Look at tax records to see transaction history. Tax records have condition information sometimes but it may not be always accurate. Texas is a non-disclosure state. So how much you pay for the property is often not known publicly. However, if the property sold as a foreclosure before, it’s likely that the tax value precisely matches the sale value (at that time). Zillow’s estimates may not be accurate but you can at least use it relatively within a subdivision or area.