5 Mistakes To Avoid When Buying Bank Owned Properties

Each business has it’s own set of risks and rewards and real estate investing is no different.

There are five potential landmines you want to avoid when you evaluating bank owned properties for sale.

1.  Trusting The Real Estate Agent’s Numbers

When looking into buying bank owned properties, make sure you have systems in place to verify the important information you need to know about the property.

Don’t trust MLS (multiple listing service) property information.  I’ve seen many real estate investors make this mistake and make their investment decision solely on what the listing agent tells them about the property.

Using the information in the MLS (multiple listing service) is a good place to start and you certainly want to gather information about the property from the listing agent, but you must travel out to the property and see it for yourself.  It’s the only way to know for sure.

Or even better, if you have the right system in place, you can send out your hired market scout to look for you.

2. Failing To Measure The Property

If you think you may have a good bank owned property deal on your hands, you will want to go ahead with this step.  Don’t ever base your investment decision on the square footage measurement provided in the MLS.  I have seen many real estate investors pay too much for a bank owned property by failing to heed this advice.

You must go out and measure the property yourself.  Buy a 100′ tape measure at Home Depot and keep with you.  Learn to calculate the property’s square footage yourself.

For example, if a bank owned property listed in MLS indicates the property has 2,500 square feet and the house is really only 2,000 square feet – there’s a big problem.  You see at $100/square foot, you’ve just lost $50,000 in profit (2,500 – 2,000 = 500).

3.  Failing To Have Your Own Represenation

When you buy bank owned properties,  you will be dealing with realtors.  Don’t make the mistake of working with the listing agent.

He or she has the banks’ best interest in mind, not yours.  Find a young and hungry real estate agent and let them represent you in the transaction.  This can work to your advantage.

4.  Not Knowing The Area Or Neighborhood

If you’re an experienced real estate investor, you should be familiar with the neighborhood where the bank owned property is located.

Be familiar with those neighborhoods your are invested in buying bank owned properties.  Know the property values, school districts and crime statistics.  Don’t ever make a real estate investment decision without knowing this.

5.  Not Knowing Your Exit Strategy Advance

Know how you plan to exit the real estate investment in advance is of huge importance to property investors.  If you plan to buy, renovate and flip to a retail buyer or buy, renovate and rent for long term cash flow, these parameters need to be in place.

I don’t think you should pay one penny more for an property just because you plan on renting it for cash flow.  Regardless of your exit strategy, the serious real estate investors always buys the property right (at a steep discount).

Learning from your own mistakes is how we learn as real estate investors.  Learning from other peoples’ mistakes is even better.  And also less expensive.