Choosing a Foreclosed Home to Buy- By: Jacquelyn Marks
Foreclosed homes represent some of the finest buying opportunities in many years. If one understands how to choose the right property, they can be pleased with the purchase.
Just because it is a foreclosed property, does not automatically guarantee that it will be a good buy. There are several factors to consider before choosing a property and making an offer. This will help ensure that a choice will be the right one.
Is one an investor or looking for a home to live in? Depending on the intended use for the property, the buying criteria may be somewhat different. Investors usually are planning to either rent the property or resell it. The primary consideration is positive cash flow, or the ability to profit from a resale.
Owner-occupant buyers who intend to buy a foreclosed home to live in are not concerned about rental cash flow. Their priorities are correlated to the size of the home and the location. They too should be very mindful of other criteria that will have a big impact on the purchase after it is completed.
If an investor, the most common mistake is location. The property choice should be influenced by an investment plan. If intending to rent the property, choose a home that does not have too much competition in the immediate area.
One of the things that led to a high foreclosure rate among investors during the last years of the housing boom was investors who bought properties for rental, in areas where there were already many vacant rentals on the market. It will force rent rates down, or vacancy rate will be higher. If planning to resell, the same rule applies. A property may look very cheap, but if there is too much competition for rental or resale, it is going to reduce cash flow or force to lower the selling price.
Owner-occupants need to choose locations occupied by more owner-occupants then there are tenants. Buying a home to live in, in an area with lots of rental properties, will likely cause the home value to remain lower. Preferably, stay in an area that is made up of a high majority of owner-occupants. This will help ensure that the property value will remain stable or go up, not down.
Investors want positive cash flow. Owner-occupants need affordable payments. Investors should know before buying, what the rental rate or resale value would be. Then determine an offer price that insures costs will not exceed the likely cash flow or resale value.
Owner-occupants should qualify themselves based on their take-home pay not gross income. For a mortgage that is comfortable and affordable, try not to exceed 36% of take home pay for a monthly payment. One may qualify for more, but this could lead to financial problems down the road. Have a monthly payment firmly in mind when shopping and making offers. Do not let agents or lenders tempt to borrow more than you can afford. Buying a foreclosed home in a good location, with a monthly payment that is affordable will result in less stress and more happiness in a new home.
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