Have you been thinking of investing in a foreclosed home?   Well, you should be!  We have been helping investors buy foreclosures in Naperville, Plainfield, Oswego and the western suburbs of Chicago for a few years now.  We buy foreclosures for ourselves as well.  We also manage investment properties for our investors and homeowners (who have become overnight investors!)

Here are 6 Tips we have found to be useful when investing in real estate

1. You are investing in a community, not just an empty home. The subdivision in which the foreclosure is located will ultimately determine its long-term appreciation. Before being lured in by a low price, do your due diligence. Is the city investing in new infrastructure, roads, schools and libraries? Is the downtown area thriving or declining? If the local city government or businesses are not investing in the town for the long-term, neither should you.  Look at Plainfield for example.  The Village has updated its downtown, built new schools, and is fully updating its infrastructure.  Plainfield is a great town to buy bank foreclosures or other distressed property!

2. Stick to Bank REOs: A “Real Estate Owned” (REO) property is a safer way to purchase a foreclosure. Unlike a home sold at auction or purchased during pre-foreclosure, its title is held by a bank or lender. While a Bank REO’s price discount is typically less than a foreclosure sold at auction, there is also less financial risk. This is a much quicker and easier way to buy foreclosures.  Inspections are allowed on these properties (they aren’t when sold at auction). No evictions are required either. Plus, the bank will see that the property is cleaned out before you take ownership, saving you potentially thousands of dollars in rehab costs.

3. The more bedrooms the better. We think three bedrooms are good, but four bedrooms are way better. Other features that will help you charge higher rents are garages, basements (an absolute must in single family homes – not required in townhomes), and at least one-and-half bathrooms.  In our area, you can easily find two-and-half bathrooms.

4. Know when to walk away, know when to run. There are hard fast rules as to when to pass up on a foreclosure. For example, if total repair work is more than $30,000, it is rare an individual investor will recoup their money – but it does depend. That is where we can help.  Damage to the foundation is another serious red flag, as is mold or extensive plumbing repairs. It is crucial that you hire an experienced home inspector to know what you are getting into. Otherwise, a foreclosure that seemed like a great deal will end up costing you more money than the home is worth.

5. Skip the flip. Real estate is slowing down after the expiration of the Federal Tax Credits. In other words, don’t quit your day job. Plan to hold your foreclosed properties for five to ten years, just as you would a mutual fund. When it comes time to sell, unlike a mutual fund, you can “upgrade” your property via a 1031 Exchange, pay no taxes, and buy a larger property (or two properties!)

6. Consider hiring a property manager: Buying a foreclosure on your own is a major task. If you are not ready to become a landlord, we have an alternative. We can manage your investment property for you. This way our investors can take advantage of foreclosure opportunities without wearing a landlord’s many hats.

Rich and Karen Ayers are licensed Real Estate Brokers in Illinois.  We are experienced Brokers who specialize in Residential and Investment real estate in Naperville, Oswego, Plainfield and the surrounding suburbs of Chicago. We also own and manage multiple investment properties and help real estate investors find, buy, fix, rent and sell their investments. Visit our website at www.AyersTeam.com or receive our blog via your RSS Feed or in your email.