How Do I Decide Which Foreclosure, Pre-foreclosure, or REO Property to Buy

How Do I Decide Which Foreclosure, Pre-foreclosure, or REO Property to Buy

By Susan M. Keenan ©2008

The best way to determine which property to purchase when looking at pre-foreclosures, foreclosures, REO properties, fixer uppers, and distressed properties is to practice a little pre-sale strategy. If you intend to make a career out of selling properties of this type, experience will be the best teacher. However, for the first time purchase of a pre-foreclosure, foreclosure, or REO property, practice the following tips to help you decide which pre-foreclosure, foreclosure, or REO property to buy.

  • The first step is to locate several properties in the geographic area that you are interested in purchasing a property. This strategy will give you a basis for comparison.

  • Establish some priorities for making a purchase. This should include things about the property that you want it to have.

  • Take the time to inspect the properties prior to the sale dates. Evaluate the condition of each property. Take a notebook with you and jots things down. Even if you think you will remember different aspects of the properties, it is better not to take chances.

  • If at all possible, request permission to inspect the documents that refer to the liens that are being held on the property. Find out if a lien exists for the property taxes since this lien might not be included with any other liens.

  • Once you have returned to your office or home, review the particulars of each property.  Determine what types of repairs are needed on each property in order to make it habitable. Determine if there is any potential for profit that you might realize with each property. Determine what level of profit is possible by evaluating the amount of debt on each versus the current estimated market value.

  • Compare and evaluate your available options for properties. Create a chart that displays the information together for ease of comparison.

  • Narrow your potential selections down to two or three choices according to your pre-determined priorities.  For example, you might want to exclude properties with less than a 30% profit margin, specific neighborhoods, or specific types of construction.

  • Now it is time to select the property that matches your criterion the closest.

Obviously, this strategy might not work for everyone. Tweak the parameters to suit your particular situation. The most important strategy to employ is to determine your reason for making the purchase. If the pre-foreclosure, foreclosure, or REO property in question does not meet this guideline, move on and consider a different property.