7 Tips Before Buying Foreclosed Properties

Have you read the book Rich Dad Poor Dad? I learned from that book that you can earn a lot from real estate. One idea is to buy foreclosed properties and turn them to a rentable unit or selling it to a higher price. Rich Dad’s fundamental formula: Look for properties with cash flow AND with a potential for capital gains.

Buying a foreclosed property has its own ups and downs. One major advantage is that the selling price is way lower than the actual market value (sometimes almost 50%). If you purchase a foreclosed house and lot in good condition at a reasonably low price, you can have a greater return on investment. You just need to repair and renovate some (not all) areas then you can match the pricing of the houses in the area. After that you can offer the property for lease if you will not use it.

The downside, you need to have a budget for the renovation (big or small).

But before you jump and look for foreclosed properties every where, I would like to give you some tips on what to check and prepare before getting one.

7 Tips Before Buying Foreclosed Properties

Where to look

To find foreclosed properties, visit banks, lending Institutions, SPAV companies (companies formed under the Special Purpose Vehicle Act of 2002 to help banks shed their nonperforming assets), and government financial institutions like the Social Security System (SSS), Home Development Mutual Fund (Pag-IBIG Fund), and National Housing Authority (NHA).

Choose a reputable and trustworthy bank/broker or agent 

It’s best to deal with banks and credible institutions in buying a foreclosed property to lessen the chance of you being scammed. This will lessen your work and anxiety in checking the units ownership and forms. Foreclosed properties are sold on an “as-is, where-is” basis so better to deal with reliable people/companies.

Inspect the unit

As mentioned, foreclosed properties are always sold “as is, where is,” so it’s advisable to thoroughly check the unit. These properties have been previously owned, so expect that there will be minor or major repairs. Check the wirings, the water connection, the drainage, the roof and the wall. Also ask people in the neighborhood if the area has a history of flood.

Consider Your Location

Besides asking the neighbors if the area is being affected by flood, you should also check the nearest hospital, market, school and other important establishments. It should be accessible also for commuters since not all have their own cars. This way, you can assess the possible renter of the place.

Have a Budget for Renovation

If you want the place to attract renters, then it is advisable to make it look like a place they will feel secured and comfortable. To give you an idea, we recently purchased a foreclosed 36sqm house and since there’s no wire for the entire house, we had it rewired, repainted and we totally renovated the bathroom. We spent more or less a hundred thousand for this including the reconnection of water and electricity.

Know Your Fees and Taxes

Besides the budget for renovation, you also need to allot a budget for electricity and water reconnection plus change of name. Banks usually pay for the arrears of the previous owners but for the reconnection, it is your duty already. Also set some money for fire insurance and real property tax yearly. If the property is located inside a subdivision, you need to know the Home Owners Association dues and check with them if there are any arrears of the previous owners (banks also pays for this if there is any).

Be Patient When Waiting for the Results

It took us 2 months to finish the whole process from the bank since they failed to inform us about the other requirements they need and it took us a month to complete it. But if there will be no problem, perhaps 3-4 weeks is enough. Of course, if you will renovate the house, then you should wait for it to finish before settling in. `

That’s all! If you have other questions and concerns, please let me know in the comments section.