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Claudia Turcaz
Nevada Housing Recovery Task Force
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Read The Las Vegas Review Journal article

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The Secret to a Profitable Foreclosure Investment – Be Prepared

You do not want to jump in and buy a foreclosure property.  There are many different factors involved in buying a Las Vegas foreclosure property, which means there are different problems that could arise during the process.  If you are prepared, this process could go much smoother.   Here are some tips to consider before looking for foreclosure investment property:

• Work with an Experienced Real Estate Agent – While there are many qualified real estate agents, it is important to work with a real estate agent that is familiar with the foreclosure process.  In order to profit from the best foreclosure deals, you and your real estate agent should know the process of researching foreclosure properties, submitting bids, and talking with the banks.
• Know the Numbers – Before you start making bids, find out what non-foreclosure homes are being sold for.  This will give you more of an idea of what is a good deal and how low or high you should be bidding.
• Get your Finances in Order – Banks tend to favor cash deals over financing deals.  However, it is possible to purchase a foreclosure investment property with financing.    With foreclosures, you must already have been approved and have a letter from your lender stating this. If you intend on paying with cash, you must have verification of funds.

Different Approaches for Buying Foreclosure Property

There are three different ways to go about purchasing foreclosure property.  The approach you take will depend on what stage of the foreclosure process the investment property is in at the time.  There are three basic ways to buy foreclosure property.  These are:

• Buying Pre-foreclosures – This is when you buy from the property owner who is delinquent on payments before it goes to the auction.
• Buying Foreclosures at Auctions – This is when the property has gone through the foreclosure process and is being released for sale at the auction.
• Buying REOs or Repos – If no one buys the property during the auction stage, then the lender becomes the owner of the property.  These are called REOs or Repos.

As with any investment property, there is always risk involved.  Buying a foreclosure as a REO or Repo is the least risky way to buy a foreclosure because you know where the lender is in cases of problems.  However, the lender does not have to provide a disclosure.

Reduce your Risks by Being Prepared

If you purchase a Las Vegas pre-foreclosure from a homeowner, that person could disappear.  You are not protected in the event that the owner lies about the condition of the house or the area.  There could be liens on the house or huge utility bills that become the new owner’s responsibility.  There could be another person on the title that did not sign.  There are many different things that could go wrong.

When you purchase a foreclosure property at the auction, there is not much protection at all. This is the riskiest way to purchase property.  It is a quick process, but you do not have any protection as to the process or the home.  You generally only see the front of the home. There are not any inspections, so you have no idea if the house even operates.  The people may not even be out of the home, yet.  You are responsible for evicting the tenants, which could be a nightmare.  They could decide to vandalize the property or steal what they can.

While this can be frustrating and a nightmare to the “unprepared” investor, these risks could be minimized if you and your real estate agent are prepared to ask the questions and verify the answers are correct before purchasing the property.

Consider purchasing foreclosures that have already gone back to the lender, rather than during an auction.  Las Vegas foreclosure investing can be a profitable investment; however, it is extremely important that you and your real estate agent are completely prepared.

In the beginning, you may not have much of a profit.  Remember, you will have expenses to pay as the owner of the home.  The rent you charge your tenants should cover all of your expenses.  It is possible to turn a monthly profit right away; however, if you charge too much rent, you may not get any tenants.  The goal is to charge enough to cover the mortgage, taxes, and any maintenance issues that could arise in the beginning.  Once the mortgage is paid off, then all of the money going to the mortgage will be your profit.

There are a variety of types of residential properties that you can invest in for rental purposes.  These include single family homes, multi-family homes, apartment buildings, and condominiums.  You can also include commercial rental property in your portfolio.  These would include retail and office space, warehouses, and mini-storages.

In order to purchase a successful rental investment property, you must pay close attention to the locale.  You want to find an area where vacancy rates are low and where people will want to live or where there are a large number of people searching for rental property.  An example of this is near a college where college students would be looking for rental property near their college.

There is some risk in this type of investment property.  You could end up with no tenant or a “bad” tenant.  A bad tenant could be one that does not pay his/her rent on time or damages the property.  Be sure to do a full background check on anyone you allow into your investment property.

To avoid the “no” tenant risk try to charge a fair price and handle situations that will arise in a timely manner.  A vacant rental property can be detrimental to your success.  When no one is renting your property, you are still responsible for the expenses.  This puts you in the negative, which is not a desirable place to be.

Once you find good tenants, keep them happy.  Be respectful to their needs and try to be as understanding as you can in times of struggle.  More than likely over the time of a person’s life, there will be times of financial struggle.  Try to work with a tenant instead of kicking them out the first time they are late on rent.  If they have always been on time in the past and are good tenants, it is much better to work with them than it is to have to find all new tenants that might not be as good.

Be patient, and you will create a residual income that will support you for years to come.