How To Buy A Bank Owned Property At A Discount Using A Little Known Government Program

There are literally hundreds of homes coming on the market daily that are owned by banks. These homes actually make up over 85% of the real estate market today. You can actually create instant equity if you know how. I will show you that by using a little known government program called a 203(k) you can have instant equity.

There is a little known government renovation loan called a 203(k). Don't let the numbers intimidate you, it's just the section of HUD's FHA programs. What this program allows you to do is buy a home from a bank that needs work. Many foreclosures that are coming on the market are being trashed by the former owners. Now, these repairs are mainly cosmetic such as cabinets, carpet, plumbing fixtures, and paint, however, you can usually purchase these homes at a substantial discount.

The first step is to get pre-approved by a lender for the maximum loan amount that you can qualify for. You may not need the maximum loan amount but you need to know how high you can go on an offer.
Then you need to locate a real estate agent that specializes in REO's (bank owned properties). Don't be surprised if the agent doesn't know anything about the program, your lender can give him or her all the information. The next step is to make an offer, remember you're looking for a "fixer upper". Don't over pay for the property! This is the way you are going to get built in "instant equity" when you close on the property.

The appraiser then gives you an after renovation value. You will then see what work needs to be done on the property to bring it up to that value. Usually it's somewhere between $15,000-$35,000. Almost invariably you can count on increasing equity 150% of whatever your costs are for example if it cost $20,000 dollars your equity will probably increase by $30,000.

Real Example
This is a transaction I just completed.
Purchase Price $375,000
Repairs $38,000
After Renovation Value $413,000
Actual Appraised Value After Completion $450,000
Instant Equity $37,000

As you can see the home in the above example was purchased for a substantial discount compared to other homes in the neighborhood.

John E. Bennett is CEO of Home Lending Specialists, Inc. in Southern California. He can be contacted throught his website at www.johnebennett.com