Setting Up the Search for Foreclosed Homes

If you are new to this blog, please read the post on getting a mentor first.

Let’s dive into the steps involved in buying a foreclosed house. If you want to read the broad steps, follow this link. I’m going to elaborate on the first step, which is setting up the search criteria in this post.

By now, you and your mentor should have discussed your financial position, how much you are setting aside to invest in your single family rental home and what you specific goals are. Based on that you will conclude that you want to buy a house somewhere in the $60,000 to $100,000 range (we are talking about investing in single family rental homes in the Dallas, Fort Worth, Denton area). I prefer to purchase homes just south of the $100,000 purchase price. $80 to $95K is a good purchase price for rental homes (based on the area of course). Some people I know buy houses for half that price. Know your area and know your price. Talk to your mentor.

1. Select your geographic area. It’s easier if your rental houses are within 10 minutes of where you live or where you work. Once the house is rented, you will very rarely visit the house if you run your business like I will describe in these blogs. Before you buy, you may visit the house and or the area several times. You will visit it daily when it’s under rehab. You may have to go there five to ten times when you are showing it to prospective tenants. There is enough reason, outside of managing it during the lease period, to go to your rental house and so keep them close. Regardless of where you live in the Dallas, Fort Worth, Denton area, you will find good quality rental houses within 10 minutes. If you decide to look in more than one area, setup one search per area.

2. Select your max purchase price (per area). Set up your search to include properties that are listed about 15% above your max. You can either expect to negotiate or monitor for price drops. So it’s good to get these in your radar.

3. My definition of a good size for a rental house is 1600 to 2400 sq ft. Any bigger than that it’s going to cost more to rehab, maintain, buy, sell, get a loan – anything. It’s important to keep the house at a size it will cash flow when rented. Rents do not go up with size linearly. Rent per sq ft drops as the house gets larger. Tenants don’t want a big house to heat and cool in Texas either.

4. If you are a new investor, it’s best to stick to newer homes. Say 1990 and newer. They are modern and save utilities for your tenants. You are less likely to run into painful plumbing, electrical or ducting issues. You may still have to deal with termites or foundation but they are usually visible problems. You don’t have to deal with lead based paint or aluminum wiring.

5. Three to Four bedrooms; Two to Two and a Half Bathrooms and a Two Car Garage.

Ask your agent to setup the search and send you the results DAILY. Let me make a very broad statement: Good deals don’t last. You must look at the results and contact your agent about making the offer IMMEDIATELY. Let me make another broad statement: If a deal has been on the market for a long time – it’s probably not a deal. The competition is fierce. Do not get discouraged though. There are many more good deals than there are good investors. Your mentor is invaluable to you. He or she can make you a good investor on day one, giving you the edge that you need to compete.

Once you decide your market area and know what the median price for a home is, set up your maximum price at about 80% of market value in that area. Do this for every area you are interested in. Your agent and your mentor can help you compute market values for the subdivisions you are interested in. I will write a separate post on computing market values. You will notice that mostly the search will only result in foreclosed homes. Some will be bank foreclosures, others will be HUDs. I skip on the short sales (I’ll explain later) and owner occupied properties. It’s easier to deal with a bank’s emotions! If you are searching on your own, you probably will not be able to search for foreclosures specifically, but your agent can. If you setup the search like I describe here, you’ll mostly only hit foreclosures and distressed properties anyway.

About Bernie

Bernie is a distinguished technologist (Motorola heritage). He along with his wife invest in residential real estate in north and central Texas. Bernie loves to teach, both technology and real estate investing and so authors posts on this blog. You can reach Bernie at
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