Our Experience With Buying a Foreclosure Property
There are a lot of blanket statements in the real estate investing world.
Lots of tactics that may work for someone, or may have worked once, or may have worked in a previous market that don’t necessarily work now.
Buying a foreclosure property seems to be one of those topics.
“Want to make a ton of money? Buy a foreclosure and flip it!”
“Want to buy a home below market value? Look for a foreclosure!”
It’s certainly enticing.
I’m sure there are investors who have made, or are still making, a killing buying foreclosed homes. Like every strategy, there’s a time and a place and a market for it.
All I can share is my personal experience and perspective as someone who once flipped a foreclosure.
Our experience buying a foreclosure
In 2019, my husband and I and two other partners started our construction company, Full Curl Construction.
Right out of the gate, we decided we needed a project, and we landed on looking for a house to flip. (Goodness, we were naive.)
We found a foreclosure that had been on the market for years. To say it was distressed would be an understatement. (Take a peek at some of the before and after photos of the kitchen.)
We had a buyer’s agent that helped us, but all offers had to be submitted through an online auction site. The first time we submitted offers, we were the “highest bidder” so we thought, wahoo! We bought this thing at a great price!
However, the bank declined our offer, even though we were the highest bidder.
This is when I started to understand why it was on the market so long.
Yes, this house was a very distressed home in a great neighborhood. But the bank wanted more than what made sense to most investors. (Ones far smarter than us at the time, ha!)
So, we put in another bid at the next “auction.”
We were the highest bidder again, but this time the Bank countered back at a much higher price.
A Bank that has foreclosed on a property doesn’t really care how awful the property is or how much work it's going to take to fix the ceiling that’s falling in on itself. They just want to get as much money as possible so as not to lose money on the deal.
And they are willing to wait until the right offer comes along.
Which is why this particular property had been on the market for years, with dozens of investors passing on the deal.
So, how did we end up?
They say the deal is made with the original purchase. And we did not buy this property at the right price. Granted, we wouldn’t have been able to get it any lower, but there’s a reason so many others passed on it.
Once we got in there and started to demo - we realized how far off our original budget was.
Everything had to be replaced.
By the grace of Covid (one good thing that came from that time was the effect on the market values), we were able to list it much higher than we expected, so at the end of the day, we essentially broke even.
4 lessons learned from buying and flipping a foreclosure
This project provided us with way more than we anticipated. It truly wasn’t about the end financial gain, but if I were to do it all over again, this is what I’d do.
1. Bring an inspector to walk through the house
Even though you cannot write an offer contingent on an inspection for most foreclosures (they usually have language that the property is “sold as is”), I would still bring my inspector to walk through the house with me so I had a better understanding of *what* would need to be done.
2. Read The Book on Flipping Houses
While I did read The Book on Flipping Houses, I didn’t read it until after we purchased the house.
I learned a lot from this book and if you have any desire to flip, I would suggest reading this book right now.
3. Hire an experienced contractor for a walk-through
While we were the contractor, we weren’t experienced contractors.
If I were to do this particular project all over, I’d pay an experienced contractor (or two) to walk through the property with me and help me tune up my budget.
Now, after doing this a few years, I have a much better understanding of what things cost, but back then, my budget was a rather uneducated guess.
4. Sit down with a realtor to look at comps
I’d have a better understanding of what I could actually sell the property for and if that made sense with my construction budget.
I’d sit down with my realtor and look at comps and dissect what kinds of finishes are expected in the neighborhood I’m flipping in. I’d know exactly what buyers were looking for in the area and I wouldn’t “overbuild” (i.e., overspend) on something that wasn’t expected in the area.
For example, we splurged on the nicest brand of windows. Now that I’ve been doing this awhile, I don’t think that was a necessary spend.
All this to say, to buy a foreclosure is not synonymous with buying a good deal. You need to analyze these properties in the same way you do any deal.
For us, our first flip house was probably not the best deal, we got lucky with the market and we didn’t lose money, but we sure didn’t make any either.
What we got was just as valuable. Education isn’t free.
I’m Emily and in 2018 I left my corporate engineering job to jump into entrepreneurship with both feet. It was a winding road with lots of pivots that allowed me to realize my ultimate goal: to build freedom in my life through empowered investing and aligned partnerships.
I want to help you find that same freedom.
Whether it’s buying your first home and analyzing the investment component of your purchase, or it’s saving up to buy your first investment property, I want to cheer you on, share my experience, and encourage more people, like you, to build freedom in their lives through empowered investing.
If you’d like support in any of these areas, send me a note and we’ll continue the conversation!