Offering an overview of some of the requirements and qualifications you may need to meet to buy multi family homes in pre-foreclosure.
Buying a multi family home can be an excellent way to enter the real estate investment marketplace. Buying a multi family home in pre-foreclosure can get you into that market at a substantial discount if the right set of circumstances line up. Buying multi family homes in pre-foreclosure has its own set of requirements and qualifications you should be aware of beforehand.
A property falls into the pre-foreclosure status when the owners fall far enough behind in the mortgage payments to warrant the issuance of a formal Notice of Default by the lender. One of the conditions typically spelled out in the Notice of Default is a timeline for allowing the owners to take corrective action. The corrective action taken by the owners usually falls into one of the following categories:
- Pay the arrears
- Sell the property
- Allow the property to proceed into foreclosure
This second option is where you will find your best opportunity. When a lender issues a Notice of Default on a property, it is required to make this a public record. By researching multi family homes in your area that have ben issued Notices of Default, you can start your pursuit of a purchase in earnest. You can also get a list of the properties in your area the federal government may have an ownership stake in through the federal Department of Housing & Urban Development (HUD).
With a single family home, the time between pre-foreclosure and initiation of formal foreclosure proceedings can be as short as 30 days. It is generally different with a multi family home as there are (as the name implies) tenants and other families occupying the property who have to be accommodated. While this can be good news in terms of allowing you time to line up financing and research your purchase, it can also present dicey uncertainty. With multi-family homes, it might take six months or longer until the house actually goes up for sale. At any time between pre-foreclosure and foreclosure, an owner in distress can make up the arrears and take the property off the market.
Contact the owner
To avoid some of the uncertainty and to get valuable information regarding the property itself, when you have a multi family home in pre-foreclosure targeted for possible purchase, you and your real estate agent should attempt to contact the current owners directly. Wit that contact, you can find out if the owners are seriously considering selling as an option to foreclosure. You can also get details about the state of the property, rental income (if applicable), the terms of the original loan and the overall financial picture involved with the property.
Line up your financing
While many multi family homes in pre-foreclosure are eventually sold at auction, the greater number of them allows you to arrange financing for the purchase. Getting financing for the purchase of a multi family home in pre-foreclosure is very similar to any traditional real estate financing you may pursue. If you are pursuing a multi family home in pre-foreclosure owned by the federal government, there are incentives and assistance programs that can help you finance the purchase, especially if the property is:
- In an economically challenged area
- Designed for affordable housing
- Designed for senior housing
- Is of historical significance
Some owners of multi family homes in pre-foreclosure will only sell the property as-is, meaning that you are responsible for any repairs. You might be able to work with the owner of the property to have some of the repairs completed as a condition of sale. You might also be able to work with the original lender and creatively work out an arrangement for repairs and/or assuming the original loan on the property.
Purchasing a multi family home during the pre-foreclosure stage is a way to buy a property for less money because lenders and owners want to take resolve matters as positively as possible. But there are complications and having an experienced advisor in your corner will be a valuable asset, QualitySmith can help by putting you in touch with local real estate professionals who have that experience.