fire escape on the side of apartment building

Everything You Need To Know About Selling A House With Tenants

It’s stressful being a landlord at the best of times, but when the time comes for you to sell your investment property and move on, the stress can feel palpable. You’ve probably spent time getting to know your tenants and have built a relationship with them, and most humans don’t deal with change all that well.

Springing the “guess what, I’m selling your residence out from under you” conversation can feel like a big deal, even if everyone involved knows that isn’t really what’s happening. If you own a home with tenants in it that you want to sell, what do you need to know and address?

You can still sell your house even if there are tenants living in it …

The good news is this: You have the legal right to sell your property, even if there are tenants living there. It’s your house and your decision to make, and if you want to sell it, that is well within your purview.

That said, there’s a good way to go about selling your home with tenants, and there are a lot of ways that generate resentment and a lack of cooperation and that generally are not pleasant or fun for anyone involved. You do have the right to sell your house; your tenants have rights, too. To make this a tolerable process for them — and, frankly, to get the place sold faster and for more money — you’ll need to solicit your tenants’ cooperation.

… But in most states, they can stay through the end of their lease

One of the rights that your tenants have is to stay in the property until the end of their lease. This applies to both month-to-month leases and fixed-term leases for longer periods of time, such as six months or one year.

Selling a rental house with a month-to-month lease is relatively easy; refresh your memory as to the terms of your lease agreement and give your tenants the appropriate notice that you will not be renewing the lease when it ends. This could be anywhere from 30 to 60 days, depending on how your lease is written and what state the property is in.

Selling a rental with a fixed-term lease can be a bit more complicated. It’s possible that your tenants’ lease might not be up for several months, and if you really can’t wait for them to vacate before buying, then you’ll need to work with them throughout the sales process, and they will stay on in their residence after it’s sold.

Would the tenant be interested in buying?

One easy solution to the issue of selling a home with tenants is to ask the tenants if they’d be interested in buying. Not everyone is going to be able to afford to do this, of course, but it’s very possible that your tenants love where they live enough to consider securing a mortgage loan and making you an offer.

If this happens, it’s really a best-case scenario for everybody. You don’t have to go through the hassle of preparing a home for sale, putting it on the market, and handling buyer bids; buyers don’t have to go through the pain of finding a home that works well for them in their price range. Don’t make the mistake of thinking you can take this step without professional help, though; it’s still a good idea to hire an agent to make sure your interests are being represented and protected.

Can you wait until the lease is up?

Depending on how long is left on the lease, you might be able to just wait until it’s up, gives your tenant the appropriate amount of notice that you won’t be renewing the lease and need them to vacate, and then put the home up for sale. Simple! Unfortunately, in some circumstances, the tenant may have more than six months left on the lease, and you may truly need the house to sell as quickly as possible.

If you can’t wait until the lease is up, you’ll need to have a conversation with your tenants about the sale. This should probably be an in-person conversation, followed by a formal letter — but the in-person conversation will give you an idea of what you’ll need to do to incentivize your tenants to be cooperative, which could mean the difference between an immediate sale or a listing that lingers and lingers.

Decide how you’re going to market the property

Most sellers who are trying to offload a rental property have a couple of different options for how to market the home. They can sell it as an investment property — in which case, an established tenant is a distinct plus — or they could sell it as an owner-occupied home. Investors won’t mind at all that the property has a tenant; in fact, they might consider it a reason to buy in and of itself.

You can market the home as both; that’s also an option. There are some traditional buyers who won’t be moving immediately and won’t mind waiting out a lease, so limiting yourself exclusively to investors isn’t necessarily your only possible path forward.

Work with your tenant on appropriate showing times

It’s important to remember that you are the person in this relationship who desires the sale. Your tenants probably have a lot of feelings about it, few of them positive; they are likely anxious about the future, unsure of where they will move or whether they will have to, sad about the loss of their residence, and more. So if you want them to cooperate to the best of their abilities, you will need to make this process as easy as possible for them.

The first thing to do — and possibly the most important — is to ask your tenant about their schedule. When would it be convenient for them to open their residence for showings, and when are the incredibly inconvenient times? Do what you can to limit showings only to the times that tenants have indicated are convenient for them. Buyers who are motivated will be willing to clear their schedules to see a house that might be a fit, so you can feel free to give your tenants some control over the scheduling.

Offer to pay for cleaning, lawn maintenance, or both

Another big pain point for your tenants is going to be keeping their residence looking showing-worthy just in case a buyer wants to stop by. This is difficult enough for sellers who are motivated to offload their own residence, but when you’re a tenant who doesn’t have a choice in the matter and you’re not going to see any financial benefit from your behavior, why would you be inspired to spend almost all your time outside of work keeping up with your house?

One way you can show your tenants that you care about their experience in this process is to help them out by hiring cleaning or lawn maintenance help — or both — to help them keep up with the showings and alleviate some stress. Yes, it’s going to cost you some money, as will a few of these suggestions. But is it better to spend some money upfront and sell the place more quickly, or to pinch your pennies and allow the home to languish on the market for months? At that point, you may as well wait for your tenants to vacate if you’re not willing to do anything to hasten the process.

Provide 24 hours’ notice for showings

Different states have different requirements for how much notice you need to give tenants about showings, but a good rule of thumb that’s acceptable in all states is to provide them at least 24 hours’ notice. Make sure that all buyer’s agents know this is the case, and don’t acquiesce to pleas to squeeze someone in at the last minute. It could be illegal, it will very likely leave a bad taste in your tenant’s mouth, and you could wind up with an uncooperative tenant on your hands as a result.

Arrange for the tenant to leave during showings

Tenants might not be intrusive when possible buyers are walking through the house, but it’s still pretty awkward to try to look at a place with the current occupant present. Talk to your tenants about options for things they can do while buyers come by to look, and do what you can to make those options easy for them. Maybe spending some gift cards to a local coffee shop or brewpub would be welcome ways for them to spend the hour or so they have to vacate the premises?

Send them on a mini-holiday for the open house

Planning on having an open house over the weekend? What will your tenants do during that time? Maybe you can offer them a night or a weekend away in a nice hotel while you host the open house. This is an opportunity for you to get a bunch of buyers in the house at once, especially if the open house is a significant part of the marketing campaign you’ve established with your agent. Do whatever you can to make it as good as you can make it — and as comfortable as possible for your tenants.

Help the tenant find a new place to live

As a landlord, it’s possible that you have more than one property in the area, and it’s also possible that you may have an opening in a residence that would suit your tenant perfectly. If that’s the case, you can absolutely present that offer to your tenant. Ask if they’d like to see the new residence, make time to show them around, and if they agree that it would be a good fit, maybe offer to help them move, too. If there’s a price difference between their current place and the new one, you might be able to do some negotiating or use it as a bargaining chip.

Even if you don’t have any other homes that might be suitable for your tenant, you might know other landlords or property managers in town through your own business. Reach out to them and mine your network to see how you can best situate your tenants. They’ll thank you for it later!

What if the tenant is behind in rent?

In an ideal world, you could ask your tenant for the rent owed, collect it, then sell your property with no further issues. But the world we live in is not ideal, and a tenant who owes rent already isn’t exactly a selling point when you’re trying to offload a rental property. In fact, it’s a liability!

There are a few ways you can tackle this problem. You could tell the tenant you will forgive their outstanding rent if they agree to move out immediately. You could try to put them on a payment plan that will help them get current by the time the sale happens. Or, depending on how far behind they are, you could start the eviction process — which isn’t fast or easy, but if there are no other options, it may be your best one.

Consider ‘cash for keys’

This term refers to a practice of giving tenants money to move out early. Sometimes landlords do this when the tenant is a problem — for example, not paying rent, or antagonizing other neighbors. It’s essentially exactly what it sounds like: You approach the tenant and offer to pay them to leave.

Your tenant doesn’t have to be a problem tenant to use this strategy when you know you want to sell. If you’re pretty sure that your tenants would cause problems in the sale, and you can’t wait for their lease to end, ask if you could pay them one month’s rent and their security deposit, or whatever seems reasonable to you, if they would break their lease and vacate early. You can also offer additional incentives, like paying for a moving company to help them make the move. This might seem counter-intuitive, but if you really need the place sold and you’re out of other options, it can be the best solution to your problem.
vacation rental

How to Find the Right Vacation Rental

Planning to stay in a hotel for your vacation is so ’90s. The emergence of the internet and websites like Airbnb, VRBO, TripAdvisor and more have made it possible for travelers to feel right at home in a new city … because they’re staying in someone else’s home and renting it for vacation.

Vacation rentals are a great way to get to know an area like the locals do. They’re often more spacious than hotel rooms, and unless you’re booking a hotel suite, you’ll also typically have access to amenities like a full kitchen.

Of course, there’s always a risk to using a vacation rental instead of a hotel — for example, some rentals might not have internet access, some might be inconveniently located for what you want to do, and there are people posting homes that aren’t really theirs and taking money as part of a scam. (This is much more popular on open websites like Craigslist than targeted ones like Airbnb, for what it’s worth.)

How do you make sure that you’re choosing the right spot for your vacation experience? Here’s a quick guide to how to find the right vacation rental for your visit.

Decide where you’re going

Maybe you want to ski in Tahoe or sun yourself on Miami Beach. Before you can start seriously looking at vacation homes to rent, it’s smart to decide where you want to go for a vacation and what you want to see and do while you’re there.

This seems easy, but most of us have several places we’d like to go given enough time and money. The key is in prioritization — and consulting your fellow vacationers, of course. Make a list of any places you wanted to go that didn’t make the cut and save it for the next vacation.

Decide what you want in a rental

Sometimes you can find a great deal on a vacation rental that will save you hundreds of dollars on your vacation … but that rental might be located miles and miles from any major attractions, meaning you’ll either have to rent a car, take public transportation (if available), or take on another expense to get where you want to go.

By contrast, a place right on the slopes (or the shore) might be more expensive than the other options, but you’re paying in part for convenience. Is that something you’re willing to do?

Make another list of the features you must have in your vacation rental, from location to a number of beds to whether you need an internet connection. Think about how much cooking (or not) you’ll want to do, whether you want to be close to restaurants or public transportation — in other words, make a list of your ideal vacation rental for this trip.

One nice thing about platforms like Airbnb and VRBO.com is the filter application; you can include your must-haves and the search results will only generate vacation rentals that meet your exact criteria. So it pays to decide what those criteria are before you jump into the search.

Plan ahead

If you haven’t already selected dates for your trip, start checking to see what the busy and slow times of year (or season) are for the area where you want to vacation.

Maybe you want to hit a big event that’s going to be insanely popular. In that case, start planning as early as possible, and book your rental as early as you can, too — the rates will only get higher if you wait.

If it doesn’t really matter when you go, try to plan around any big events that could boost prices while you’re in town to find the best deal possible.

Google Map it

Once you start looking at actual homes, do yourself a favor and check out the neighborhoods and streets where those homes are located.

You might find something that’s lovely and impeccable on the inside, but if the general feel of the area doesn’t seem safe or polished to you, then maybe you should pass. Pay attention to major thoroughfares and attractions, too, so that you know there’s a highway behind the home that might keep you up at night or a concert hall that might be a little loud down the street.

The maps can also show you quickly which retail stores and restaurants are nearby, where the vacation rental is in regard to public transportation, whether the sidewalks are clean and well-maintained or trash-ridden and cracking — you can learn a lot from this step, so don’t skip it.

Read the reviews

Airbnb, VRBO.com, and other reputable vacation rental sites will have a review section — don’t ignore it.

Those reviews are written by other vacationers who stayed in the home. They often report on things like cleanliness, noise levels, whether the photos were representative of the home — all things you’ll absolutely want to know before you fork over money for a week in the place.

You can also see (to an extent) who left the reviews, how often they travel, how highly their own hosts rate them (a bad review from a poorly rated guest can probably be safely ignored), and then decide from there how valid you think their opinion is (or is not).

Ask about amenities

Is there wifi in the vacation rental? That might be something you can filter out with search results, but other questions might not have handy answers — like, “do you make towels available for beach use,” “can I park in the garage,” and “is there a Nespresso machine in the kitchen.”

Look at your list of must-have criteria and ask yourself if you can confirm that the vacation rental has (or does not have) the items on that list. If there are any missing, ask the host about them. It’s possible that accommodations could be made, but you’ll never know unless you ask!

Ask about fees

Will your host charge for additional guests, and what’s the standard nightly cleaning fee? Can you access the vacation rental’s pool, or does that cost extra? When you’re close to deciding that this is the right place for you, contact the host (if you haven’t already) and ask about any additional fees or costs associated with staying there.

Not only will this help you budget, but getting an answer in writing can also protect you from any unknown charges if the host is an unscrupulous sort. Better safe than sorry.

Solicit suggestions for things to do

Most good hosts will do this without asking, but it’s always nice to ask the people who own the home (and have presumably lived in it) for tips on things to do and how to make the most of your time in the area.

Some good questions to ask hosts if you can’t think of any yourself:

What’s your favorite place to eat in the area?

What route do you talk about when you want to take a walk?

Where do you go when you want some quiet time outside of the house? Where do you go when you want to meet new people?

Where can you find the best live music in the neighborhood?

What’s the parking situation like? (If you have a car.)

What activities for kids or families are available?

Is there anything I should know about the neighbors?

When you take the time to plan ahead, finding (and renting) a vacation home, even if for the first time, is both easy and rewarding.

mentoring at work

How To Find A Mentor As A Real Estate Agent

One thing that can make an enormous difference in your career success as an agent is whether or not you have a high-quality mentor who can help you navigate the ins and outs of real estate. In fact, many agents discover that they operate very well if they have more than one mentor to tap for questions and advice.

Your real estate broker may be one of your first mentors, and if you really want to hone your skills and become the very best agent you can be, then you should also seek out other mentors who can help round out your experience and education. But how do you find a mentor? Here are the steps you should be taken consistently in order to keep a good number of mentors in your world as an agent.

Network, network, network

This is very standard advice for real estate agents; you have to network to find clients, after all. Networking with other agents can be beneficial for many reasons besides seeking out a mentor — you’ll meet people who can refer clients to you, for example, or who might know good resources for title and escrow, inspections and appraisals, or mortgage loan issues.

You should also network to keep your eyes open for potential mentors in your area. A good mentor will not only have more experience in real estate than you have; they’ll also understand the market and be able to give you advice on how to read it and share what they’ve learned.

Don’t walk up to a possible mentor and simply ask them to be your mentor, all that said. In a perfect world, you’ll be able to form a relationship with your mentor or mentors where they can help teach you about real estate and you can help them in some other way.

Start forming relationships

The best mentors are good not because they necessarily know better than everyone else; they’re the best because they understand your situation, your needs, your career goals and aspirations — and they know how to help you achieve those goals. This means that they’re going to have to get to know you as a person in addition to as an agent, and you’re going to have to be able to talk to them very frankly to get the best advice.

In other words, you’re going to have to form a real relationship with your mentor in order to truly benefit from your encounters and discussions. While you’re networking, make sure you’re spending a good portion of your time just getting to know people on a personal level. If your mentor can understand some of your life situations because they’ve been there before — and you can trust that they understand it because you know their history — then you can both cut through a lot of the explanations around why you think and feel the way you do and get straight to how you are going to strategize and operate around your challenges.

Decide who’s mentor material

You may really click with some people who you meet in a networking environment, but you know that for whatever reason, they aren’t going to work out as a mentor for you. That’s fine! You’re allowed to make friends and acquaintances, too. And on the flip side, you may meet people who you think would make excellent mentors, but for whatever reason, they aren’t going to be able to fill that role for you. These are all reasons why it’s smart to try to make more than one mentor connection if you can — there is no rule that says you can only have one mentor at the time, after all.

Think about the people you’ve met and consider their levels of experience and areas of expertise. Do you think any of them might have some information or skills that you could also use? Do any of those people who do seem like they could help you also seem interested in spending more time with you or forming a deeper relationship?

Hopefully, by this point you’ll have a shortlist of possible mentors, and you can start thinking more deeply about where you need help and where they might be able to assist you.

Assess your skills and ask for help …

Even though humans do have a tendency to overestimate their skills at just about everything, we also tend to be pretty good at knowing where we are strongest and where we could probably use a little bit of remedial assistance. It isn’t a mark of failure to understand that your financial planning could be better, or that you aren’t very familiar with marketing tactics in real estate, or that thinking about negotiating makes you feel a little bit nervous.

When you know where you need the most education and training, it’ll give you a better idea of whom in your mentor network to approach. You’ll know who’s best-suited to answer which questions and who might not be an expert in certain areas, and you can ask them for advice accordingly.

… While taking stock of how you can help, too

Most people tend to think of mentorship as a bit of a one-way street between the mentor and the mentee, but that absolutely does not have to be the case. There might be a lot you can do to help your mentor, both to thank them for the ways in which they’ve helped you and also to signal to them that you yourself are a resource and an asset to their business.

Perhaps one of your mentors keeps talking about learning the ins and outs of the latest social media platform but hasn’t had time to do it, and you could sit down with them and offer an hourlong hands-on tutorial. Maybe they need a landing page or listing description written, or someone to look over their website for typos. Your skills are likely just as varied as the mentors you’ve encountered, so think about what you can offer them — then offer it.

Talk about your challenges

Even the best mentor in the world can’t be expected to help a mentee solve a problem that they don’t know the mentee is currently juggling. It’s almost never the easiest thing in the world to be vulnerable with someone, especially someone you respect and whose respect you crave in exchange, but don’t lose sight of the end goal, which is to be the very best real estate agent that you’re capable of becoming. You can’t do that if your mentors don’t know about the problem client who’s been giving you headaches and exactly why the client is upset with you.

When you’ve reached a point in your relationship with your mentor where there’s been some reciprocal exchange of education and resources, it’s acceptable to approach them and ask them for their advice with a specific challenge that’s bothering you.

Take feedback to heart

Look, nobody likes to hear that they messed up; it’s human nature to shun that kind of feedback. Nonetheless, we have to hear it if we want to improve. One of the most valuable things any mentor can do for you is to provide straightforward, unbiased feedback about how you’re doing and where you could be better. And one of the smartest things you can do when you’re put in the position of listening to this feedback is to really listen, ask questions, refuse to get defensive and apply it when and where you can.

Believe that your mentors will notice how coachable you are. It will make them more inclined to share more wisdom with you in the future if they know that you take their experience and advice seriously.

Consider coaching

Some agents might dismiss coaching as an unnecessary expense, but smart agents think of it as an investment in their own future. Even if you have the most amazing network of mentors that has ever been seen in the history of real estate, you could still benefit from a coach — someone whose entire job and career is to make you better at yours, to call you on any excuses you’re making, and to hold you accountable to your goals. Many mentors can do some of these things some of the time, but almost no mentor will do all of them for you consistently, and when you reach a point in your career when you’re finding that you need deeper evaluation and fine-tuning of your strategies and efforts, a coach might be the next logical step for you.

Man with empty pockets

How To Manage Stress When Dealing With Home Financing

One excellent way to improve your financial profile is to buy a home of your own. But we won’t lie: It’s a long and potentially incredibly stressful process, especially when it comes to the dollars and cents of securing a mortgage loan.

So how do you navigate the stress of the journey in order to reach Destination Homeowner? There’s a lot that’s within your control to help ease some of that stress and make the whole thing a little bit easier. If you take a few steps upfront to manage the financial details early, you’ll thank yourself on moving day.

Get pre-approved for a mortgage

Getting your mortgage loan is arguably the most labor-intensive aspect of buying a home. You’ll have to submit documents that show your income and expenses, including tax returns, bank statements, pay stubs, and more. A mortgage pre-approval is much more involved than its lighter cousin, the mortgage pre-qualification.

But a pre-approval will help you understand exactly how your new home will fit into your finances and whether you can even afford the house you’re currently touring. Some buyers make the mistake of getting pre-qualified for a mortgage, making an offer on a house they love — and then discovering once they submit all the paperwork that they can’t actually get a loan for that amount.

Sound stressful? It is. Avoid that all-too-common scenario by taking care of the hard part early: Talk to a mortgage lender and get your pre-approval lined up so that when you do find a home that you could call your own, you can place an offer on it then and there without needing to wait for approval from a bank.

Pick the best mortgage for your situation

All mortgages will help you buy a home, but not all mortgages are created equal when it comes to your own personal financial profile.

If you know you’re only going to be in your current city for two or three more years before pursuing a career change elsewhere, for example, then maybe a 30-year fixed-rate mortgage is the wrong choice for you. You could build more equity in a shorter period of time with a 15-year mortgage, and an adjustable-rate mortgage might give you a more competitive rate for the time you’ll be in the home.

Conversely, if you are planning on digging in and staying for a while, then a 30-year fixed-rate mortgage might be exactly what you need.

If you’re a veteran or a first-time homebuyer, then you might be able to access loans from a government-sponsored entity (GSE) like the Federal Housing Administration or Veterans Administration, both of which offer loans that don’t require a full 20-percent down payment. And that might mean you can become a homeowner a lot sooner than you thought!

A mortgage broker can walk you through your options and help you choose the mortgage that will work best for your current situation.

Save as much as you can

Even if you’re securing a low-down-payment or no-down-payment mortgage, you should still expect some out-of-pocket costs that you’ll have to shoulder before you can start paying a mortgage instead of rent.

Depending on the sales contract, buyers will likely have to pay for the appraiser and the inspector to look at the house and (respectively) appraise and inspect it. A seller might request earnest money in order to accept an offer, so buyers will have to provide that. Necessary repairs to the house might be taken on by the buyer in order to expedite the sale, so that’s another possible expense to consider. There are closing costs that need to be paid to the title company upon closing, and if a buyer wants to purchase title insurance to protect the sale, that’s an additional expense, too. And don’t forget about the cost of moving — you’ll need time off work and a truck at minimum, or to hire your own movers. Then once you move in, you might need to pick up some new furniture or other items for your new space.

If you’re starting to get the idea that there’s no such thing as saving too much before you embark on your home sales journey, then you have the correct impression. Don’t let those costs sneak up on you; be aware of them and budget for them so you’re not worried about how you’re going to get it all done.

Research before you bid

If you’ve found a home that could be yours and you’re ready to make a bid, stop and think before you decide on a number.

You might think that offering the seller’s asking price is a perfectly safe move to make (and it might be), but how will you feel when you learn that most sellers in the area are negotiating down from their listing price? (Here’s how you’ll feel: Like you left several thousand perfectly good dollars on the table that could have been yours.)

And offering less than asking price could also be considered a safe move in some markets, but in others, you might have priced yourself out of consideration from the opening bid.

A good real estate agent can explain your local market trends and help you come up with a bid that works with your budget and will be seen as serious and competitive by the seller. Agents can show you whether houses in the area have been selling for below or above the asking price and can help you find that sweet spot where both you and the seller are happy with the deal.

If you can follow these four suggestions, your home purchase process will be a relative breeze — and your stress levels will stay under control. You’ll be glad you took the steps to smooth your path a little bit once you’ve finished the journey.
house for sale

How To Buy a Foreclosure

Many buyers are understandably nervous about buying a foreclosed home, also known as a distressed sale. There are horror stories galore about people purchasing a foreclosure and regretting it, but buying a foreclosure isn’t necessarily the nightmare that some people portray it to be.

However, there are some things you need to understand about foreclosures before you think about purchasing one as either a primary residence or an investment property. Learn what to expect and prepare yourself before you consider spending large amounts of money on a distressed property.

Understand what a foreclosure is

A foreclosed home is actually a specific term that refers to a certain stage in the distressed sale process. The different types of distressed homes are simply at different points along the continuum of distressed sales.

In a pre-foreclosure, the homeowner is in default on the home loan and the property is heading toward foreclosure, but the lender has not yet foreclosed on the home. Some aspects of pre-foreclosures make them comparable to distressed sales in the rest of the process, such as the typical inability of the homeowner to negotiate on things like repairs, or the fact that the owner might have been under financial strain for some time and there could be some significant issues with the home.

So what’s a foreclosure property? A foreclosure is a home that has been repossessed by the lender and is going to sell at an auction. These auctions are cash-only and sight-unseen — they’re a great way for investors with cash on hand to find new properties to buy and hold or fix and flip, but not necessarily the most realistic way for an average buyer to get their foot in the door on the property ladder.

Then there are REO (real-estate-owned) homes or bank-owned homes. These are houses at the far end of the continuum: the former owner has foreclosed and left the property, but it didn’t sell at auction; now it’s going to sit on the bank’s balance sheet for some time until someone buys it.

Tips for buying a distressed home

You don’t need to be an investor to consider purchasing a distressed home. There are some excellent deals available for the right buyer, but you need to know what you’re getting into before you dive too deep.

Cash is king

Many investors buy their properties with cash, which is a tough thing to compete with as a buyer who needs to get mortgage financing in order to be able to afford a home. You can get a mortgage loan to buy a distressed property — more on that later — but even so, you’ll need to make sure that you have plenty of cash on hand readily available if you want to buy a distressed property.

This is to cover the assorted hidden costs associated with buying a distressed property. That includes not just the normal costs of a home sale transaction, like closing costs, but also the cost of repairs that need to be made to the house, as you might not be able to get those financed. And if the house isn’t move-in-ready, you’ll also need to make sure you can afford to continue to pay for your current residence until it’s available for you to occupy, so don’t forget about the carrying costs of owning two residences.

Get preapproved

Preapproval is important for any buyer in any home sale process, but it’s especially critical for buyers looking at distressed properties. You won’t be able to add contingencies to the loan in many cases, and if you’ve ever bought or sold a home with another human, you already know that the home sale process can be tedious and drawn-out — now imagine if instead of a human on the other side of the deal, you were working with a bank.

The more red tape you can eliminate for yourself on the front end, the more successful you will be in your home shopping experience, so do yourself a favor and get preapproved before you start seriously looking at distressed homes.

Research, research, research

If we assume you’re getting financing for your home purchase, that means you’re either buying a home as a pre-foreclosure or an REO property (remember, auctions are cash only). This can be an advantage because you can’t do the same level of due diligence on an auction property as you can at the other stages of distressed property sales, and as you can imagine, due diligence is absolutely vital when buying a distressed home.

Before you make an offer on any distressed home, do your best to investigate as much as you can about the property. If it’s an REO home, find out how long it’s been unoccupied — homes left vacant often have compounding issues and will require more repair work than homes that have been consistently occupied.

Hire a home inspector and ask the inspector to include a repair estimate in the inspection. Then remember that repair estimates often stretch beyond their boundaries; use that information to decide whether to make an offer and how much to offer on the home. This is also no time to shirk on what are sometimes considered frivolities in home sales, like title insurance. A title search is typically included as part of a home sale, but in this case, it’s particularly critical because there might be liens on the house that you don’t know about and that you’ll have to get cleared up as the sale moves forward.

If it’s possible, visit the house. At least walk around outside and get a sense of what it will look like when everything is all spruced up — and just how bad any damage truly is. It will also help give you an idea of how long the previous homeowner might have been financially struggling before foreclosure (and therefore how many long-term problems might be lurking inside).

Watch the market

Buyers interested in distressed properties are competing against experienced investors in many cases, so just like those investors, it’s going to pay to watch the market and make sure you understand what’s going on. If foreclosures in your area are almost all selling at auction, then you know there’s a high demand for them, and you might want to bid higher for the pre-foreclosure that you’re discussing with a seller. If there are a lot of REO properties that aren’t really moving, you can probably take your time selecting a house and making an offer to a bank. But either way, you have to understand what’s going on in the real estate market around you and adapt your strategy accordingly.

Make an airtight offer

Remember that contingencies aren’t the norm, and banks also aren’t known for their ability to speed through, well, anything. The closer you can get your offer to “final” in the very first go-round, the better it will be for everybody. Talk to your real estate agent if you’re unclear about what should go in the offer and the contract. By now, you should have done plenty of investigation into the home and should feel pretty confident about your decision; if you don’t, you can always ask for another more specialized inspection.

Closing, repairs, and move-in

Very few distressed homes are going to be move-in-ready for their buyers. Depending on the level of work that needs to be done, some buyers might elect to work on the house while living elsewhere and move in only when it’s ready, and others might feel it’s doable to live in the house while working on it. That’s going to be up to you, your lifestyle and household, and the amount of repair that your newly acquired, formerly distressed home requires.

If you do the work on the front end, you’ll find that buying a foreclosure — or a distressed property — can be an option for owner-occupiers, too, not just investors. But make sure you’re not skimping on the due diligence. Learn everything you can about the home you’re going to buy and you’ll be much less likely to encounter an unpleasant surprise as a homeowner.
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