Buying Distressed Properties
Every cloud has a silver lining, and the rise in South Atlanta home foreclosures is no exception. That’s if you’re an investor hunting for good deals.
Investing in foreclosures is not a low-risk venture. You often need to act quickly, have ready cash and may need to earmark money for repairs to make properties sellable. Here are some basics on buying distressed homes.
Where The Deals Are
Short sales: When borrowers can’t keep current with mortgage payments, some lenders agree to allow the sale of the property for less than the loan balance. These can be found by reading the comments section of the MLS listings. Beware of the difference between an approved short sale and an unapproved short sale. In an approved short sale the current owner has already gone through the short sale approval process, which can take up to 3-4 months. If your dealing with an unapproved short sale be prepared to wait.
Auctions: Auctions typically offer good buys, but the risk to you is greater. You must research liens against the property and decide on your maximum bid price. You’re also required to have proof of funds or be pre-approved and in most cases a large down payment is required just to bid. Typically the auction companies do not offer any financing or inspection contingencies. You can use an agent to assist you or deal directly with the auction company.
REO’s, Foreclosures: (Real Estate Owned) These are properties that have been taken back by the bank. These homes are frequently listed in the multiple listing services and can be found on the internet through a multitude of websites. I suggest you use an agent that is comfortable with buying REO properties as the process is different than buying an owner occupied home.
HUD Homes: These are properties taken back by the FHA. While primarily targeting the owner occupied, there are often deals for investors who don’t mind making improvements. While the owner occupants get first crack at these properties, they tend to stay clear of most properties that need improvements, thus making great deals for investors. Traditionally HUD has taken a 8% to 12% discount off their list price, but they now are taking deeper discounts on properties that have been on the market for longer than 120 days. For a listing of the best 4 HUD deals in South Atlanta you can visit www.southatlantahudhomes.com.
To Repair or Not Repair… That Is The Question!
Deciding to repair or not should be dependent on what your goal for this property is. If you want to flip it for a profit then you will most likely need to make some repairs. If you’re wanting to keep it for a rental, maybe repairs could be less. In all likelihood you will need to make some repairs, but the trick is to set a budget and keep to it. Your repairs or updates need to match the value, neighborhood and price point of the house. If you have a property your planning on selling for $70k, then putting granite counter tops may not be cost effective. If however you have a house for $300k, it may be expected. Doing the repairs yourself or working with an agent like me, who has a complete list of reliable subcontractors will save you money. If you need some help with reliable subcontractors, just drop me a line at alrichard@charter.net and I’ll send you a list of who we use. We list and sell bank owned properties and we constantly have to use subcontractors for all sorts of repairs. Make sure you include not only your repair costs into your final selling price but also a realistic estimate of your holding costs. If it will take months for you to repair it before you even start marketing the property, make sure you account for that cost. For Henry County, Clayton County, Spalding County and Rockdale County 157 is the average days on market.
Now What Do You Do With It
A couple of years ago the flippers were everywhere. Even today you can’t turn on HGTV without finding a flip this house type of show. We work with many investors and while there are abundant deals to be had, most of our investors are not flipping properties outright. There are still a few areas where flipping is still happening but it’s in small pockets throughout the city. This is not a great market for first time flippers to be cutting their teeth that have never done this before. With the downturn in the market, most of our investors are now picking up these properties and sitting on them until the market turns. By and large, most are only making minor repairs and renting the properties. For most, the plan is to rent the properties for the next year or so until the market turns, then make the major repairs and sell it for a bigger profit.
Should you need any help finding investment properties please give us a call. We list bank owned properties, we run South Atlanta HUD homes and we are very knowledgeable and comfortable with these properties. We know how to find the deals so please give us a call at (770) 769-8000 or drop me a line at alrichard@charter.net.