How To Purchase Foreclosures

[Patrick Q.]

Hello All,

I would like to try to purchase my first rental at as ‘discounted’ a price as possible.

I plan to to BRRRR it as a means to start the ball rolling on my investment portfolio.

How do I purchase foreclosures with a conventional mortgage in NJ/NY?

Are there certain people that have access to the properties, such as the banks, certain types off real estate professionals?

Any information that anybody could provide me to start looking in the right places for leads on these would be greatly appreciated.

[David M.]

@Patrick Q.

Hmm... if you are talking about a true foreclosure, then you are going to a Sheriff Auction. Many times you aren’t able to enter the property and most of the due diligence is on you. It’s pretty tough to impossible to purchase with a mortgage because the quick closing time and you don’t know if the property will even qualify (conforming loans require a “functional”) or appraise for the loan.

If by "foreclosure" as a property that has already been through the foreclosure process and is now being put back on the regular market as a bank owned property, or REO, that's a bit different. Because banks want the competition, they don't really allow and "inside" sales. There are agents/brokers who focus on doing these distressed sales (because you really need a team to keep up with the required paperwork and overhead), but they aren't necessarily going to spend much time representing you. Because the prices are depressed, they have to make their money on volume, not quality of their work. So, buyer beware. Anyway, these listings will be listed on the mls and generally go pretty quick because of all the investors out there and "regular" people wanting a deal.

Depending on the property, you maybe able to be able to use a conventional loan. Just remeber, you are trying to buy a distressed home so do not expect all the “bells and whistles.” The bank isn’t going to lift a finger and will make you, the buyer, responsible for everything. For example, well water tests in nj are about $750 and generally done by the seller... not in this case... if the utilities aren’t turned on, that’s your problem (which includes good luck getting a water test since the pump needs electricity)... got a question about the house? Hurry up and get a specialist to inspect because the bank can’t tell you anything about the condition of the property.

Sheriff sales are rather risky. REO sales aren't that risky, but a more run down property requires more work on the buyer's part so you and/or your realtor needs to know how to handle everything. But some REO listings aren't that bad...

Hope that helps. Good luck