What to Look for in a Community When Buying Pre-Foreclosures
It’s a tragedy that many people are forfeiting their homes during this sub-prime real estate crisis. It was recently reported that foreclosures account for 50% of the homes currently being sold in the US. Even though many people are losing their homes, there are many others who can finally afford a home or are now investing into real estate and taking advantage of these discounted prices.
Donald Trump is a great example of someone who was investing in real estate during a downturn in the market. Now look at him! “There are always opportunities”, he is quoted as saying. “When I first started out in Manhattan, everyone was saying what a terrible market it was”. He admits if he had listened to the nay Sayers he won’t be were he is today.
Many of the most successful real estate investors currently see this as an opportune time to buy real estate (Mr. Trump is in this list) and see pre-foreclosures as the greatest means in which to negotiate the best deals.
The great thing about buying a pre-foreclosed home is that you are dealing one-on-one with the owner and have a chance to ask questions and inspect the house. Since the bank has time to evaluate the property there is a higher probability of being granted a mortgage.
When looking to purchase a pre-foreclosure you also need to pay closer attention to the macro aspects (I’ll cover micro aspects in a later article) of the property in order to limit your risk as much as possible. Some of these property macro aspects are:
- Do you notice an extremely unbalanced number of foreclosures available in the area? It’s preferred that your pre-foreclosure deal is the only one in the neighborhood.
- Ask around to find out what the average rate for rent is in the neighborhood and if it has changed lately. This will indicate if local housing demand is on the rise or not.
- How strong is the economy at the town and county levels? Is the current employment rate growing or stagnating?
- Check with the local government to see of any upcoming infrastructure projects that will be taking place within 2-3 years. Projects such as new shopping malls, highways, train/subways lines, building permits for new businesses being established, new parks near the property, etc.
- What are the demographics? If there is an extremely high level of seniors in town and only a small percentage living in nursing homes, guess what, it could cause a housing surplus within 10 years or so.
If you do your homework and find the majority of these answers to portray a positive community, then you should consider buying in that area. Buying pre-foreclosed homes at the right time in the right place can prove to be a very profitable venture.
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