Should I Get an Appraisal First?
You should certainly check out the property and get a comparative market analysis (CMA) so that you know what similar properties have sold for. That should be your guide as to how much to bid.

Some bidders will offer close to market price. Others will try to sneak in with a low bid. Sometimes, if there’s little interest in the house, the low bid¬der can walk away with it.

Are the Properties in Good Shape?
Generally, no. although they run a broad range of conditions. Remember, these homes were taken back through foreclosure. There was little or no incentive on the part of the former owners to maintain them during the long foreclosure process. In some cases vandalism may have taken place. Thus, you’d be well served to screen these properties carefully.

TRAP

Beware of “HUD slums.” Sometimes FHA loans are made to an entire tract of homes. Later, many, and sometimes most, of the homeowners for one reason or another fall into foreclosure. Soon whole blocks of the tract are vacant HUD repos. On occasion vandalism runs rampant. Some of the homes may turn into “crack” houses. In short, the entire area becomes so depressed that it’s not likely to be suitable for investment purposes.
HUD homes are sold “as is.” This means that HUD does not warrant their condition. Thus, it’s up to you to conduct a thorough inspec¬tion. If you’re serious about a home, you may even want to hire a profes¬sional home inspector to check it out. However, you’ll have to pay the $250 to $300 inspection fee. And later, if you aren’t the successful bidder, that’s money down the drain.
What Are HUD Incentives?
• The asking price will typically reflect the condition of the property. For example, if the home in perfect condition might have a market value of $150,000 and this home needs 55,000 of corrective work, HUD would probably ask less than S100,000. If you can get it for less and do the work cheaply, you will have bought yourself a real bargain. (Beware of underestimating repair costs. Unless you’re expert at remodeling and refurbishing, get bids from professionals.)

• HUD may offer a morning allowance to a successful bidder as an incen¬tive to purchase a home (primarily for owner-occupants).

• If the property is particularly run-down, HUD may offer an upgrade allowance. I’ve seen these that were quite large, sometimes well over $1 0,000.

• HUD may offer a cash bonus for closing the deal early. Typical closings take anywhere from 30 to 60 days. Close in 15 days and HUD may be willing to pop for a few extra dollars.
While all of the incentives sound good, it’s important to keep in mind that HUD’s primary goal is to get as much money out of the properties as quickly as possible. Typically, the “good” properties will go fast, and there’s little need for HUD to offer incentives on them. The “dogs” that won’t move are more likely to offer incentives.

But then again, if you can buy a dog for a fraction of the market price, fix it up inexpensively, and resell for a hefty profit, those are just the prop¬erties you want!

Who Pays the Closing Costs?
The closing costs (not including the real estate agent’s commission) amount to about 3 to 4 percent or less. Typically, the buyer would pay these, except that you can write into your offer that HUD pays most of them. If HUD accepts, you don’t have to worry about the closing costs.

Keep in mind, however, that having HUD pay your closing costs means that it gets a lower net out of the deal, and your other is less competitive than someone else’s who doesn’t ask HUD to pay closing costs.
What about Financing?
HUD offers financing through the FHA (which insures mortgages but does not generally make them). However, most of this financing is for owner-occupants.

As an investor, you’ll probably need to come up with your own financ¬ing. Be sure to contact a lender first.
Where Do I Find HUD Homes?
Begin your search for a HUD home by logging on to the Web. (As with most foreclosed properties today, the basic work is done on the Internet.)

The main HUD site is www.hud.org. However, as of this writing, the address that takes you to the homes for sale site is www.hud.org/ offices/ hsg/sfh/rco/ homes.cfm. This will give you a list of states. Pick your state and you’ll be taken to the site of the real estate management company that oversees the area. Not all homes are listed on the Internet, but many are. You’ll also be given some helpful information about buying homes from HUD.
Where Do I Find a Participating Agent?
Basically, any licensed agent can participate in the program. However, agents must first register, and there are forms for them to fill out.

Some agents sell HUD properties on a regular basis and. therefore, are much more familiar with he process and arc more likely to find what you want the first time out. An agent new to this area is more likely to bog you down and miss a successful bid.

To facilitate sales of these foreclosed homes, in some areas HUD will use broad listing brokers (BLBs). These are brokers who will list the properties on their local MLS. You can buy through them or through any other bro¬ker. However, the BLB gets a fee for handling some of the sales work on each transaction. A list of BLBs is available from the property manager in your area (found by going to your local sale site).

The HUD foreclosure homes for sale can be a good place to begin your search for hidden real estate bargains. Keep in mind that the program attempts to sell the properties for market price, so you’ll have to be careful and patient to get one that’s far below.

You can also contact HUD directly:
U.S. Department of Housing and Urban Development
451 7thSt.SW
Washington, DC 20410
Telephone: (202) 708-1112       
TTY: (202) 708-1455