Buying Houses for Investment Purposes
Buying Houses for Investment Purposes
Buying Houses for Investment Purposes
Buying houses for investment purposes can yield a good return if done correctly. Due to the massive amount of foreclosures, evicted property owners require a place to live. Finding affordable housing can be difficult because foreclosed homeowners suffer substantial credit damage and usually become deemed as a bad credit borrower.
Today, many investors buy houses for use as rental properties and focus on renting to foreclosed homeowners. Some also add incentives such as owner will carry financing to retain long-term tenants. Owner financing allows bad credit borrowers the opportunity to rebuild credit and qualify for financing within 2 to 3 years after foreclosure.
Investing in foreclosure houses can save investors money, as long as the property is not in complete disrepair. One option is to purchase Fannie Mae Homepath properties. This government sponsored program was developed to liquidate thousands of properties repossessed by lenders with mortgage loans secured through Fannie Mae.
Many of the properties offered for sale through Fannie Mae Homepath are eligible for government grants through HUDs Neighborhood Stabilization Program. Grant funds can be used to rehabilitate homes or develop vacant land in areas with skyrocketing foreclosure rates. Combined with the discounted prices and special financing options offered through Fannie Mae Home Path Mortgage, investors can save several thousand dollars off the purchase price.
Another option for buying discount priced homes is to seek out homes sold under real estate short sale contracts. When property owners are facing foreclosure and unable to cure mortgage arrears to retain their home, lenders sometimes allow them to sell the property 'short' of the amount owed on the home loan.
Short selling is a complex process, but can often be worth the effort. Many of the homes offered through short sales are in good condition or require minimal repairs. Real estate investors capable of purchasing short sale properties with cash can often further reduce the asking price because the sale can close quickly.
When buying real estate short sale homes it is best to work with a short sale specialist or real estate agent familiar with the process. This type of property is sold through each lender's loss mitigation department and will require buyers to submit substantial paperwork. Since banks are incurring a loss by accepting a reduced payoff they generally do not negotiate the sale price.
Foreclosure homes can be purchased through public auctions or directly from banks. Buying houses through auctions involves submitting bids and providing funds for the home soon after the bid is accepted. When houses do not sell at auction they are returned to the lender and listed for sale through bank loss mitigation or local real estate agents.
Realtors are an excellent choice for locating foreclosure real estate. However, buyers must calculate the cost of buying foreclosed homes through a realtor to include the cost of commission.
Bank owned houses are normally priced higher than foreclosures sold through auction. However, lenders take action to remove liens which could slow down the process of transferring the property or add additional costs to the purchase price. Banks also evict foreclosed homeowners who refuse to vacate the home.
Auction foreclosures, bank owned properties and short sale real estate is sold in 'as-is' condition, so buyers must engage in due diligence to determine the actual cost of the home. At minimum, investors should obtain a broker price opinion appraisal and property inspection.
Investors who obtain bank financing for investment properties should be financially prepared to pay mortgage payments if the property is not rented in a timely fashion or if tenants fail to pay rental payments.
Investors should consider all options available for generating cash flow from rental houses. These could include using the property as a vacation rental, exchanging the house using 1031 exchanges, offering seller carry back mortgages, entering into Subject 2 contracts, providing lease purchase option agreements, or using the house as Section 8 subsidized housing.
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