Buying Foreclosures the Flip Houses Guide

Buying foreclosures is much harder and riskier than infomercials and real estate seminars will have you believe. Not only do you have to find the properties and check them out, you can’t do funky financing (because the lender just got burned by the person it foreclosed on who used funky financing), and you have to find a stable neighborhood.

If you are going to try to get into the real estate business as a small-timer, you are much better off selecting neighborhoods that you know and that are near your home than you are in pursuing foreclosures across a wide geographic area. It doesn’t matter that a foreclosure is perhaps 10% cheaper than a comparable house, if you are buying in a crappy neighborhood or buying a house that someone has abused.

My friends who’ve made money on buying houses have done so by selecting in areas where there would be a steady stream of potential renters, and then finding reliable people to live in the homes for 2 or 3 or even 4 years. Over that time, the houses increased in value enough so that there was equity that could be tapped to buy another quality house. And so on.

An even better idea is to buy a house and live in it for 2 years. Then you can sell it and use the profits to buy your next house, without paying capital gains taxes. Remember, if you buy a foreclosure and resell without living in it (ie., “flipping”), you are on the hook for taxes.