Top 5 Foreclosure Mistakes

If you do decide to invest, make sure you avoid these top 5 foreclosue purchasing mistakes:

1. You say, “It was worth double that in 2005.” IRRELEVANT. You need to look at where the value is going, not where it’s been. Most properties will continue to depreciate for many years. The property is currently worth whatever you are buying it for and will be worth less in years to come.

2. Getting a Mortgage. Guidelines are very strict, making it difficult for everyone to qualify. Investors should be prepared to put at least 30% down and wait 60+ days for the loan to close. Paying cash is the best way to go, once you own the property you can possibly refinance to get your cash back out of it.

3. No Inspection. Do whatever you can to view the property before you put down the deposit. All foreclosures are sold “as is” and you are responsible for all repairs. One major repair could eliminate all of your equity and cash flow.

4. New Landlord. There is plenty to managing a property, from dealing with tenants, to maintaining the property and now, just collecting rent is a challenge. Hire a property manager to take care of this stuff for you, you invested in real estate to have more time and money anyway.

5. Negative cash flow. Then why are you buying it? For appreciation? Good luck. You have to be prepared to hold the property for long periods of time as it further depreciates and you are unable to sell it. Factor in everything, (taxes, insurance, homeowner’s dues, repairs, property management) and if you are not getting at least $100 in cash flow each month, walk away.

There is always a good time to buy real estate, as long as you buy it right. Run your numbers for cashflow, forget about flipping or appreciation and have an exit strategy.