Foreclosure Training

Investing in Foreclosures? The Fundamentals Still Apply
by Michael Sexton



When you’re buying foreclosed properties, you can throw away all the classic wisdom about real estate investing, right? It’s a whole new world with new rules.

No, wrong. The fundamental rules apply, only moreso. Let’s take a closer look.

Rule One: Foreclosure or not, location is still of prime importance. You still need to look for properties in locales that promise growth and appreciation. So always consider the trends in municipalities where you might buy investment property. A new commuter line, a new hospital or a new school can dramatically increase property values. Even though you will find more foreclosures in dying communities, stay away from them. Location is still king.

Rule Two: There must be a way to increase the value of what you are buying. If there is no potential for growth, why invest? Remember, not all foreclosures are the same. As with all properties, some are standouts and some are duds.

Rule Three: Cash flow is still king. Even if you are applying a prudent“buy and hold” strategy, how will you generate income from your holding? Remember that the “on paper” value of the properties you own is fine, but that negative cash flow can drain the lifeblood from your investments and sink you.

Rule Four: Comparable values are still the yardstick for success. Comps are the yardstick you must use to evaluate the potential of your investment. So do the math. When buying a house to renovate and sell, deduct the cost of your renovations from its fair market value. That’s how much you should pay, not one cent more - whether the property is a foreclosure or not.

Rule Five: You still need expert advice and counsel. Buying a foreclosure does not entitle you to get sloppy and make decisions on the fly. You need a good attorney, a capable home inspector and all the other pros who can help you minimize risks and avoid mistakes.

Rule Six: Take your time. Even with “foreclosure fever” in the air, the first foreclosed property you see is probably not one you should buy. Yes, there might be a limited period of time left to take advantage of the current foreclosure boom. But that doesn’t mean that you should rush to snap up the first property you consider and make unwise mistakes. You need wisdom on your side.

Nick Woodard
Keller Williams Realty
www.nickwoodard.com
615.566.9839