If you want to get a great deal on a home, you must buy from a motivated seller. How do you find a motivated seller? Often, sellers that are going through a job relocation, a divorce, or some other life change are motivated. These sellers are likely to give away equity. And unlike a foreclosure, you get a property disclosure which will give you a history of any home repairs. Also, the seller warrants their statements about the condition of the property. These properties are often in better condition than a foreclosure because the sellers are keeping the properties in “marketing” condition. Your Realtor can help you locate motivated sellers and distressed properties.
Homes that are in the process of selling before foreclosure are often sold as “short sales”. A “Short sale” means that the bank or lender accepts less than the current mortgage balance for the property. Usually, before a lender will agree to a short sale, the seller must be in default (that is they must be behind in their payments, or have stopped making payments altogether.) In these situations, the seller is said to be “over-encumbered” and owing more than the home is worth. A short sale might bring the price in line with market value, but not below market value.
Speed is not a virtue of a mortgage company when they are dealing with short sales. These days, the bank mortgage representative has a stack of files with home sellers that are in the same situation. They are in no hurry to give you an answer as your contract is not on top of the pile. If you are patient, a purchase of a short sale can put you in a positive equity position but don’t make an offer on a short sale property if you need to move into a home quickly.
I have bought and sold many investment properties. My motto is “good deals do not come perfect”. You may not get the perfect floor plan. You may have to paint the interior. You will have to fix things and you will need to clean the carpet and chemically treat the “green” swimming pool. In the end, you will come out with a beautiful home and a strong equity position. This is the typical condition of a pre-foreclosure or newly foreclosured home. Neither the owner nor the bank wants to put money into a property that they are taking a loss on. It is on this type of home where you can get the strongest equity position.
When you buy the reduced price home for your primary residence, you will be able to make improvements and get a return on your hard work. Remember, the tax rules are now written that if a home is your primary home, in most cases, profit when you sell is not taxable. To maximize your profit, buy with the intent to stay in the home for a minimum of 3 to 5 years. This will allow time for the market to improve and for your investment to increase in value.
If buying homes that need work does not appeal to you, in our current market new home builders and sellers of existing homes are giving some wonderful deals. Many are paying all closing costs, and making changes to the home as requested by the buyers. To get a good deal, it is wise to buy when others do not want to. This is the kind of market where you will have them greatest power.
