Residential building foreclosure – flipping

Buying real estate site unseen is risky business.

With the large amount of distressed and foreclosure properties on the market right now there are many opportunities for builders to make and lose money.  The most common way for a builder to aquire distressed residential properties is to either buy at the county auction, buy in the REO (real estate owned ,AKA: bank owned) market or through a short sale.

Buying at auction can provide great investment opportunities for builders however there is significant risk.  Typically you will not have much information on the property.  Are there back taxes owed, utility bills etc?   In most cases there is no opportunity for a builder to inspect the property.  Often the most information you can glean is by driving by the property for a quick look at the exterior.  It may be hard to tell if the property is vacant or occupied.  If it is occupied, are they renters?  The answer to that has significant implications if you end up owning the property.  Buying at the county auction requires cash as well which can be an obstacle for most people and builders.  There are foreclosure investment groups that charge a fee for helping interested investors navigate this market.  For those starting out utilizing a foreclosure group is a good way to get started even as a builder.

If a property doesn’t get sold at the auction and the bank takes back the property they will often list it through the regular real estate channels like the MLS.  With these REO properties a builder can get inside the properties to inspect and learn much more about the property you are thinking of buying.  These properties are usually sold “as-is”, so any problems like a bad sewer line will not be disclosed.  It’s a buyer-builder beware situation.  When shopping in this market conventional financing is available.  This increases the competition for the really discounted properties and cash is king when competing on a great property deal.

Another way for a builder to acquire distressed property is by buying a property in short sale.  A short sale comes about when the borrower can’t make thier payments and the house will likely sell for less than what is owed on it.  The bank and the borrower agree to a short sale to avoid foreclosure.  In this situation it is possible for a builder to pick up a property at a discount.  The major drawback to short sales is with the shear volume of homes in jeopardy of foreclosure banks are unable to respond to offers in a timely manner.   I’ve heard of people waiting to hear about an offer they made on a short sale house for 6 months only to find out it was rejected by the bank.

Using any of these methods to acquire a discounted property you will need to have some experience in the building residential trades.  In today’s market it almost always takes some building improvement to successfully sell the home for a profit.  Whether the property is in need of a simple room renovation or needs an addition and renovation it will help to have a Seattle general residential contractor on board to offer advice, cost data and building services.

Kyle Keever, writes about and engages in general contracting in Seattle, Wa. Learn more about Keever and Associates at our General Contractors, WA blog.