First home investment, foreclosed a good buy or a trap?

Question

Hi everyone,

I have a question regarding a first home purchase. I am looking to purchase a very cheap home located in Pontiac Michigan, one that will allow me to stay afloat with the little money I have. I want to live in it, and slowly flip it as the year goes on. My  questions is buying a foreclosed home a bad investment or idea? If not why, and how do I go about purchasing it? If it is bad, why shouldn't I go through with it. What are the red flags with something like this.

Also what would be the best way to get an investor to help me purchase it? I practically am done with my lease and am  looking to purchase a home asap to live in.

I'm in college as well would this be beneficial to me when it came to loans? Should I have roommates live with me? Paying rent?

Shane Casad · Answer

@Andrew Smith I also have been looking into the same thing. I will be moving out of my apartment in August, and am trying to weigh my options for living. I am a college student at MSU, and considered a live-in flip, or renting out to others to pay my mortgage. Obviously all numbers would have to be right, and I would need to figure out my finances. The alternate to flipping, for me, would be to hold it as a rental. I understand that East Lansing is a completely different market than Pontiac. Best of luck to you!

Mark Forest · Answer

I have also heard that the city inspectors are unreasonably tough.  You really have to know what you are doing if you invest there.

Scott K. · Answer

I would stay out of Pontiac as a first time buy.  To flip it in Pontiac would be tough.  Also stay far far away from MLK Blvd.

How much is the house?

So you want to buy a house but you want an investor to buy it for you?????????

Are you able and willing to do the work yourself??????????

Why Pontiac?

Mike D'Arrigo · Answer

@Andrew Smith

There's nothing wrong with buying a foreclosed home but be prepared to do a lot of work on it. It's pretty rare that you can get a foreclosure that is move in ready. The bigger questions is what is your exit strategy? You said you want to live in it until you can flip it. Are you planning on flipping to an owner occupant? That's pretty hard to do in cheap neighborhoods. If you're going to flip it to an investor, you need to be sure that the cash flow and ROI are attractive to an investor. Be real careful of cheap properties in Pontiac.

Darnell Kramer · Answer

@Andrew Smith

Welcome to BP. Get some reading in on the articles.

As to buying a foreclosure it is the same as any other investment, make sure the numbers work first.

There is something great about making your first investment the place you live in. You can work, learn, and make some mistakes. You will not lose holding costs due to contractor delays, inspections, finding those 'easter eggs' that come up when you pull down dry wall.

If you can get it there are still FHA mortgages with 3.5% down for owner occupied.  Get an inspection, as Chris mentioned, that will at least help with anything that is not covered up.

Good luck.

Chris Music · Answer

Andrew,

Sounds like a good idea, assuming you have the ability and money to fix the place up. The fact that the house is a foreclosure doesn't really matter in the sense that you can still flip it for a profit just like a non-foreclosed home. Make sure you inspect the house, depending how the previous owner treated it and how long it's been vacant will affect your rehab cost.

Getting a loan on the place depends on your situation, credit score, money for down payment, income, etc. You could get a hard money loan that will go out a year but that's goling to cost you higher interest than a traditional mortgage. There are plenty of options you just need to look at the numbers and determine which is best for you.