2022 Goals That Every NewReal Estate Investor Should Set!
Let’s talk about goal setting for all you “newbies” out there who are considering buying a foreclosure, wholesale, or tax deed property in 2022. Where do you start? Remember the Chinese proverb “A journey of a thousand miles begins with a single step”?
Purchasing a foreclosed home can be an excellent way to get a great property for less than market value, and you can see an instant return on your investment. Finding a great foreclosure in a strong market can be a little challenging, but it is possible.
There are different stages of foreclosure: pre-foreclosure, auction, REO, and government-owned. Set your goals based on which type of foreclosed property may work best for you. Before you make an offer on a foreclosed home, make sure you look at the recent sales price of comparable properties. Use the comps that are for AMV (after market value), which is usually once the home is refurbished and ready to flip.
There are many nuances to buying a foreclosed home. For newbies, it is vital that you set the following goals so that you have all your ducks in a row before you bid on a property.
You want to do your due diligence and figure out how much you may possibly profit by flipping a foreclosed property. Maybe you want to rent it out for passive income instead?
Your decision and strategies depend on many variables, including the property’s location, condition, and the type of financing you can get. Set a budget and consider the cost of repairing the home yourself versus costs of renovation and construction.
To get a good deal, you have to buy the property below market value at selling for 80% of market value, minus the cost of repairs.
2. Find an Experienced Agent
Try to find a real estate agent who specializes in renting out and selling properties in the area that you are looking to purchase the foreclosure. They will help you navigate the process by making sure the house you are looking to purchase is in an area with a low crime rate, a sought-after school district, and upscale shopping malls and recreational spaces — anything that makes your house attractive to a potential renter or purchaser.
They can search the MLS for you, which is something that you cannot do as a consumer, to give you an estimate of what your house may be worth when selling. Look for a real estate agent who is savvy and knowledgeable in finding great deals for investors. Some may even invest with you and take a piece of the action, which can be a great way to afford a foreclosure in a strong market.
Don’t forget the cost of repairs, property taxes, and closing costs could turn a bargain home into a money pit. The bank can hold you financially responsible for any property debt not paid by the previous owner, so you must get a title search.
Be aware that, in all states, the previous owner has the right to redeem their home before a foreclosure sale. This means they can reclaim their home if they can repay the debt within a certain period. It is called the “statutory right of redemption.” You may want to consult a foreclosure attorney for more information on a particular state that you are researching as the details vary from state to state.
3. Make a Competitive Offer
Set a goal to make the right offer on a house — you need to be creative with this. Once you get more experienced, you can make the judgment call for yourself when putting in an offer. It is an art and not a science! Luckily, this is not one of your first steps but a goal for after you have been on this journey a good few hundred miles.
4. Prepare Yourself and Gather a Great Team
Remember that foreclosure properties are sold “as-is” — once you buy it, the property is yours! Repairs, property taxes, and insurance are your responsibility, so your goal is to make sure you have everything in order.
If there are material defects in the home like the roof or plumbing, asbestos issues, or termites, that is now on you to fix. A great goal is to get a team together before you carry out any renovations on your foreclosure property.
A general contractor is a good start. The GC usually subcontracts out their work. They have their own plumbers, electricians, and roofers, so you have a readymade team! You can search for landscapers and pest control companies on platforms like www.angi.com or www.thumbtack.com.
5. Network, Network, & Network More!
There is usually a Real Estate Investors Association in your area that meets up every month, possibly on Zoom at the present time. Check out National Real Estate Investors Association (REIA) for your local chapter. This group has many seasoned investors who can give newbies advice on where to find a great GC, where to find the best deals, hot areas to look for properties, and financing (especially hard money lending).
Some investors are already members of real estate syndicates and are looking for new investors — that could eventually be you! These groups are a great place to start to gain knowledge, so make it your 2022 goal to attend, even virtually, one meeting a month.
You can even create your own group on Meetup. Think outside of the box too. Maybe get together with coworkers, people you meet at the gym, your golf club, or even members of a FB community group. Always check out a stranger’s credentials first, though!
6. Look Into Financing Options
You must pay cash to buy a foreclosed home at county auctions. You should set your goals on how to raise that money from the get-go. If you want to eventually finance your project, you could qualify for an FHA home loan. An FHA 203(k) renovation loan can be an option for borrowers who want to roll projected renovation costs into their mortgage. Go to www.hud.gov for more information.
Many newbies call on family and friends to lend them money for their first project if they don’t have enough saved up. It can be a straight loan, with or without interest, or you can offer them a share of the profits once you renovate the home and flip it for a great profit!
If you own an existing home, you may want to take money out of your home with a HELOC (Home Equity Line of Credit), but you would need to contact your existing lender first for terms and conditions, including interest rates and length term of the HELOC. Check out www.bankrate.com for more information on how a HELOC works.
You can also find hard money lenders (HML) by speaking with other investors, agents, and mortgage brokers in your network if family and friends are not an option for you. Hard money is obtained from a private person or business for real estate investment.
Some constraints of hard money lending are that it is short term, high interest, and can involve loan points. Be aware the lender may charge four points (4% of the loan) and a very high interest rate of 12%!
Mortgage interest rates are still low, but if you are considering this route, you must also figure this into the total cost of the project and realize it is the price of doing business as a newbie. The benefits of a HML are that you can obtain your requested financing in just a few days with minimal paperwork and no credit check or other formalities that are found in conventional lending. If you have a strong deal, it is possibly worth it.
Plan your goals for 2022 with care and consideration. If you don’t do your due diligence when purchasing a foreclosed property, you could fall short of the financial goals you set for yourself when starting out on your real estate journey. Use the acronym SMART for goal setting: specific, measurable, achievable, relevant, and timely. Good luck!