buying a foreclosure to flip

7 Replies

I am just getting started with real estate investing, and have found a home on Zillow being sold by the bank for $71,000.  It was foreclosed to the lender for $95,200.  I'm not really sure what that means as far as the price.  Can I offer a lower amount than the $71,000?  Is there a chance that I could pay less?  The house is just less that 1800 sq ft and needs all new floors, both bathrooms and kitchen update.  The roof needs replaced, it needs gutters, the chimney exterior is missing siding or whatever was on it.  The house once updated should sell for $170,000 or more according to comps in the neighborhood.   I really see potential in this and want it, but I am afraid that I am missing something I should know. Like liens on the property?  How and when do I start to find that out? Any help would be appreciated!

    Thanks, Anna

@Anna Stephens :

I am just getting started with real estate investing, and have found a home on Zillow being sold by the bank for $71,000.  

-- Contact the LISTING BROKER to submit offers. The listing Broker or Sales Agent will be on the For Sale Sign on the property.

It was foreclosed to the lender for $95,200.  I'm not really sure what that means as far as the price.  

  -- The lenders generally buy back the property and then list it with a Real Estate Agent. 

Can I offer a lower amount than the $71,000?  Is there a chance that I could pay less? 

  --  Drive by the house and find out who the LISTING AGENT IS [ NOT THE AGENTS YOU SEE ON ZILLOW.]  TO PUT IN AN OFFER SEEK OUT THE LISTING AGENT FOR THE BANK owned property

 The house is just less that 1800 sq ft and needs all new floors, both bathrooms and kitchen update.  The roof needs replaced, it needs gutters, the chimney exterior is missing siding or whatever was on it.  The house once updated should sell for $170,000 or more according to comps in the neighborhood.   I really see potential in this and want it, but I am afraid that I am missing something I should know. Like liens on the property?  How and when do I start to find that out? Any help would be appreciated!

  -- THIS IS THE RUB WITHOUT EXPERIENCE IN THIS AREA YOU'LL NEED HELP.  THE TOWN WILL Generally TELL YOU IF THERE ARE ANY MUNICIPAL LIENS.  IF YOU HAVE A LAWYER THEY CAN DO A TITLE SEARCH TO SEE IF THERE ARE ANY LIENS ON THE PROPERTY AND THAT THE TITLE IS CLEAR. ( IN SOME STATES, YOU NEED A TITLE COMPANY TO DO THE SEARCH) You will also have to know if the taxes are up to date, the water bill, and trash bill.  Outstanding permits.  And most important ...   Title V inspection if the property has a septic system, find out when was the last time it was pumped out.  If it was over 2 years this is considered a 'Failed Systerm' and would require a Septic Inspection. If the bank will not pay for a Septic Inspection, then the property will in all practicality be a cash sale as it will not qualify for any loan.  There are some construction loans available that may consider the Septic Issue, check with these Loan Officers for the specifics.  When it comes to septic systems you really have to know the town regulations as well, they may require a completely new Septic System and on the high end consider $20,000 - $30,000   

  --  I Think you need a mentor or a litter more research before you lunge into foreclosed or distressed property.  It sounds great but the research can be intimidating for a new investor.    Keep reading online and best of luck.

-ron

@Anna Stephens , Zillow lists properties which are in the foreclosure process but that does not mean they are for sale...just yet.

It sounds like this property has been foreclosed (i.e. went to auction) and the bank now owns it. It usually takes a few months to a year for the bank's REO agent to then list it with an agent for sale.

The bank may choose to list it for more or less than what was owed to them (depending on the market and whether they made any repairs).

My recommendation would be to partner with a more experienced investor, as has been mentioned, or at least use a buyers agent, as it will not cost you anything to use an agent.

Good Luck!

If the bank actually took it back at the auction for $95,200, that means other bidders bid it up to $95,100 and it would be odd for them to list for 25% less. Is this property actually listed for sale in the MLS, or is it on auction.com, etc.?

@Anna Stephens

If the bank currently owns the property I would not worry about any liens or title issues.  When you make your offer, the purchase agreement will require them to provide a free and clear title.  

As far as the discrepancy in price, 75k vs 95k I don't believe it was the result of other folks bidding.  The bank usually bids up to the judgment amount. In this case 71k.  If others had been bidding against the bank, they would now be the current owners.  Since it is a bank property something else created that $ difference.  Could be the costs of the sale, such as lawyer fees, sheriff fees and such.  Maybe they got added to the judgment amount to get you to the 95k

So as far as what the bank will take, who knows.  Start at something crazy low and see what happens.  50k?  

Thank you all for your helpful comments and suggestions!  I did call the agent on the sign this morning and will be meeting him to tour the inside today. We walked around the outside yesterday, so I'm excited to see where today takes us. I'll keep you posted!

@Anna Stephens any updates on your progress? My partner and I are newbies, have recruited some cash investors and are looking for homes to flip. We have some of the same questions you asked about foreclosures, would be interested to know what happened!