When it comes to purchasing a foreclosure in Tampa Bay what you don’t know can hurt your investment portfolio. Learn how to evaluate profitable foreclosures with these simple steps.
1. Alternative Measures. Price alone isn’t always the best indicator of value when it comes to foreclosures. In fact, price is one of the least reliable indicators of value since the original cost of the home could have been inflated or may not represent the current value of the home. Instead, use an alternative measure of value. Some of the more common measures include:
• Rental Rates. What would the house rent for if it were placed on the market? If the cost of mortgage, taxes, insurance and other anticipated expenses is less than, or equal to, the current rental rate then it indicates a solid basis.
• Replacement Cost. Another common measure includes the replacement cost of the home if it were to be built new. Calculate the cost of land, impact fees, labor and materials to derive the estimated replacement cost of the home. Tampa foreclosures listed at, or below, the current replacement cost of the home and land indicate a solid purchase price.
• Return on Investment. Calculate a conservative return on investment by taking the combined levels of appreciation, depreciation (minus recapture) and tax deductions into account as compared to your total investment then compare against “safe” alternatives such as Treasury Bonds.
2. Future Profit Potential. The most desirable Tampa foreclosures are those which present a long term growth potential. Although many variables impact the viability of a neighborhood, the following represent a few “tried and true” measures every investor should take into account when evaluating a potential property:
• Owner Occupied versus Rental. When working with a real estate agent request information about the percentage of owner-occupied homes versus rentals in the immediate area. Typically, owner occupied neighborhoods tend to retain a higher value for a longer period of time than comparable neighborhoods with large numbers of vacancies or rental homes.
• Amenities. New schools, hospitals and shopping are always attractive options that help neighborhoods retain value over the long run.
• Durable Patterns. Affordable housing options located near major universities, public transportation, large employers and other high demand areas never go out of style.
3. Buy Right. Although buying a Tampa foreclosure might seem easy there is often more to it than meets the eye. Working with a qualified real estate agent with a proven track record of buying and selling Tampa foreclosures is the key to success.
• Experience. Intimate knowledge of the various types of foreclosure sales, bidding instructions, restrictions and other qualifications is necessary to participate in some of the best foreclosure sales opportunities. Take time to ask how many foreclosed Tampa homes the agent has sold in the past.
• Education. Every foreclosure program has unique rules, regulations and oversight governing the dispersion and sale of the foreclosed property; make sure your agent routinely works with foreclosures in Tampa in order to reduce the risk of losing a big sale due to a technical error or paperwork glitch.
• Expertise. A real estate agent should be a lot like a partner who is able to supply the information and resources required for you to make an informed decision. Take time to ask a few tough questions before selecting an agent to determine the level of expertise exercised by the agent.