Foreclosed multi family as first property?

[Matthew Mello]

Began doing some heavy research on buying my first multi-family in southeastern MA / Providence RI area

I will be occupying one of the units and renting out the other units. I want something that needs a little work but nothing like a total gut. I have the skill set along with people close to me to do the work myself but then the main question here is...

what are the cons of buying a foreclosed house? What kind of financing will I be able to get? Will I need to put 20% down? Any hidden surprises.

Not insanely worried about cashflow, my goal is to be able to live on the property for near nothing and then when I move out and buy a second have my first one have a cash flow. I'm mainly looking to have some equity right away and the easiest way is looking like foreclosed properties.

Thanks in advance for the responses.

[Anthony Thompson]

@Matthew Mello do you mean buying at a foreclosure auction, or buying it as an REO (bank-owned) property once the bank has foreclosed, taken ownership, and put it back on the market?

I would not recommend the former, buying directly at a foreclosure auction, for someone just starting out. Getting access to the property is often difficult/impossible so you'd be buying sight-unseen, and prone to get caught up in the moment of the auction and overpay for such a risk.

Also, and this is no small thing, there are potential title issues with buying at a foreclosure sale, and you're buying "as is, where is" with respect to both the property and title. So my usual recommendation is, if you're not comfortable doing a title search on a property and being able to understand everything that comes up, buying at a foreclosure auction may be too risky.

Buying an REO property once the bank has taken it back and put it up for sale on the MLS is a lot safer, title-wise. You still need to watch out for the "bank addendum" that is nearly always present in the listing, particularly since it usually says that any terms in the addendum override any "standard" P&S terms, and usually heavily in the bank's favor. For example, it's common to see language saying that if the closing is delayed due to the buyer's issue, the buyer pays a hefty per-day fee. However if the closing is delayed due to the bank's issue, the bank pays no fee whatsoever. And trust me, delay's from the bank's side are common.

Besides looking at the bank addendum carefully and understanding everything you'd be agreeing to, in general there's competition for the few REO properties that come on the market these days (as there is for any rehab coming on the market). As long as you don't mind getting an "OK deal", which it sounds like you're fine with, then I'd say if you're set on a foreclosed property, buying REO off the MLS would be the far preferable option.

You may want to look, or have your real estate agent look, at the possibility of some REOs having an "owner occupant" period where they give preference to offers from people who are going to live in the property. So that can shut a lot of (honest :) investors out for a certain period of time. You'd still have to compete against other owner occupants but there would probably be a lot fewer of those.

The owner occupied offer period may just be for HUD properties, it's been a while since I've looked into it, but it may also be other banks. Definitely something to ask your agent about if you're using one, or to look out for in the remarks/notes of properties if you're looking for properties yourself on riving.com