Considerations when buying a foreclosed home

Flipping houses is an age old practice that can actually be quite beneficial for the parties involved. Buyers, will typically purchase a home for a low price because the property is in bad shape, whether it needs extensive remodeling or the previous owners entered foreclosure. 

When you decide to flip a home, you are doing so knowing full well you will have to spend a good chunk of money fixing up the outside and inside of the home. But you're OK with the plan because if you choose the right remodels at a reasonable price, you may attract potential buyers who will offer you more than you envisioned.

If this is the case, your return on investment will have been well worth the time it took trying to find, and subsequently buy a fixer-upper or foreclosed home.

But this option is not for everyone. You truly have to be dedicated to remodeling a piece of property and, according to Zillow, understand that rewards often come with risks.

Before you look for the next hot housing market and buy real estate for cheaper than you can imagine, it will help if you keep in mind some important reminders about flipping homes.

Do your homework

Foreclosed homes are often listed differently than homes sold and advertised by real estate agents. This is because of a number of reasons. For instance, when a homeowner enters foreclosure, it's because he or she had failed to make their monthly mortgage periods for an extended period of time.

In most instances, these payments were to a bank, which do not like managing property because banks earn their money off mortgage interest rates. An empty piece of property does not make the bank any money, and as such, they will be eager to sell the property.

Lucky for you, the flipping process can be started quite easily and finding a home to remodel may not require that much work at all. You can start by contacting the bank directly and bypass a potential auction, where someone else might come in and scoop up your future property.

You can also utilize online resources, such as the U.S. Department of Housing and Urban Development, which keeps a details about property listings.

From there, you'll have to ensure the home is worth the initial investment. Depending on the neighborhood, you may be able to easily find out what the price of a comparable home is. Doing so will give you an idea on savings, market value and the likelihood of a high ROI. This step is a delicate balancing act because a property may seem worth flipping, but for various circumstances, you are unable to move it and instead have to take a loss before you are able to even make a sale.

Inspection needed

Before you start making detailed plans about where to start with the remodeling process, a property inspection is needed to discover any underlying issues. Depending on the condition of the house, these may be severe or relatively minor.

Be sure to thoroughly check the basement, roof, heating and cooling systems, the home's foundation and more. Once everything checks out, then you can start the fun phase.

Since the home is yours, you're free to do whatever you see fit in terms of design and overall feel. Don't go overboard, however. You want to attract buyers by spending as little as possible.

Flipping homes is a process that is common, but there are some important steps involved before you can get involved. Play your cards right, and you can buy a cheap home and be able to sell it for a much higher price.