At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
We all know someone who’s amazing at finding the best deals around. They don’t have to wait until Black Friday to score a cheap television, and they shop at thrift stores but always look like a million bucks. Is there a way to do that with real estate, where finding a cheap home can save you thousands of dollars in interest and fees?
Lauren Rosin is a real estate agent in Arizona who works with investors looking for deals. She advises buyers looking for cheap houses to “Partner yourself with someone who’s in the market, not someone stuck on the MLS” (multiple listing service).
“Most of my investments are off-market, and by the time they hit the MLS, they get bid up,” she adds.
If you’re trying to figure out how to find cheap houses to buy, take a look at some of our tips and use them to form a house-hunting strategy.
Finding cheap houses: Homes currently for sale
To find a bargain, look closer at MLS listings. Target homes that have been on the market for a long time. Those sellers are usually willing to make a deal, particularly if the buying season in your area is almost over and they need to move.
Along with a higher number of days on market, you might see a recent price reduction. If the seller has dropped their price, this likely indicates two things; they have wiggle room in their asking price, and they haven’t received any offers.
If you’re handy and willing to put in the work, look for “as is” in the listing descriptions. This is generally a clue that the home is a fixer-upper that you could buy at a steal. But be careful that you’re not getting in over your head and make sure to still have the home inspected. You could lose the money you save on the home’s purchase price on repairs necessary to make the home livable.
You can also look for vacant or inherited homes. Some cities publish a vacant housing list, which you can find on the city website. These lists will have categories of one, two, or three, which indicate how long the home has been vacant and what condition the home is in. Before buying off this list, be aware that in some jurisdictions, homes that make it to category three — the worst level — must become fully code-compliant before the city issues a certificate of occupancy.
Find possible inherited homes by reading your local obituaries, then searching property tax records to find the deceased’s property. While they might need some cosmetic updates, they’re unlikely to be in as rough shape as a category-three vacancy. Relatives of a deceased person might just be looking to get rid of the property — and its responsibilities — quickly and for a fair price.
If you’re truly having no luck, expand your search area to include farther-flung neighborhoods. When home shopping on a budget, you’ll need to be flexible. Areas further out from urban centers could have lower home prices.
For-sale-by-owner listings could also represent a potential bargain. Sellers are already saving on the real estate agent’s commission, so they don’t need to make as much on the sale. But without an agent, they might have an inflated idea of their home’s worth, and you might have to educate them on the market.
Finding cheap houses: Off-market homes
Lean on your network and put the word out that you’re looking to buy a home. Word-of-mouth can tell you who might need to move before they’ve even listed their home. Keep an ear open for life circumstances — like a job offer in another state or a divorce — which could lead to a move. Sometimes you can make an offer before the seller ever lists their home.
Door-knocking is another tried and true method to find off-market homes. Pick a neighborhood where you want to live and drive around, looking for homes that might fit your criteria. Introduce yourself to the owner and see if they are willing to talk about selling or are thinking about moving in the next year or so. Even if they’re not open to selling, they might know a neighbor who is planning on a move.
Finding cheap houses: Short sales
Short sales are home sales where the seller is headed toward foreclosure. The current owner has worked with their lender to arrange to sell the home at either a loss on the mortgage or for the current amount outstanding.
Short sales can be risky, particularly if they’re bank-initiated. If the seller refuses to move out, you might have to incur the eviction costs after closing. Banks sometimes collect and hold on to several offers, trying to get the most out of the property and leaving you in limbo for months.
To find short sales, search court records for “preforeclosures” in your area. They’re sometimes listed online, or you might have to go into the county clerk’s office. Contact agencies who specialize in representing short sales and ask to be added to their mailing list.
When making an offer on a short sale you might have to deal with both the current owner and the bank who owns the mortgage on the house. Negotiations can get tricky. Before deciding to look at short sales, find a real estate agent who’s experienced with these unique sales.
Finding cheap houses: Foreclosures
With a foreclosure, the bank owns the home. It’s often the step after a short sale fails, and one of the advantages of buying a foreclosure over a short sale is that the previous owner has already moved out.
Finding foreclosure auctions varies by city, county, and state. Some cities list foreclosures for auction on the town website; Others require that banks publish auction listings in the local newspaper. If you attend a foreclosure auction, you need to have proof of funds and be able to pay cash for the property.
There are some serious drawbacks to purchasing a foreclosure. You have to vet the property in advance, and you often won’t be allowed to tour the property before the auction begins, so you won’t know what it’s like inside or if it’s a good deal beforehand. It’s also not uncommon for homeowners in foreclosure to strip out everything of value, down to the copper pipes, when leaving.
If you win a foreclosed home at auction, you can have a home inspection done, but you can’t negotiate the price after the inspection. Your only option is to either proceed with the sale or walk away, and you won’t be refunded the inspection fee.
Rosin advises that you familiarize yourself with the local laws before bidding on a foreclosure. “There are trustee states and judicial states,” she says. “In a trustee state, we bid on the house, put $10,000 down, and the next day the money is due, and you’re done.”
On the East Coast, you’ll find judicial states require more steps to foreclose and a redemption period. Redemption periods of up to six months after the foreclosure decree allow the previous owner to reclaim their property, so you’ll want to be careful of this.
Banks refer to the homes they’ve repossessed in foreclosure but have not sold at auction as real estate owned, or REO. Search for this term plus the ZIP code where you want to live to find bank-owned properties. Because bank-owned properties have already gone through a foreclosure auction, but didn’t sell, you may be the only interested buyer.
There will be less pressure when buying an REO versus buying a home at auction, you’ll have time to tour the house and potentially obtain estimates for any needed repairs before you make an offer.
Finding cheap houses: Special programs
There are two government-sponsored programs that could help you find a cheap house to buy if you meet their requirements.
The U.S. Department of Housing and Urban Development (HUD) Good Neighbor Next Door program sells single-family homes in revitalization areas at a 50% discount from the list price. You must be a law enforcement officer, a pre-K-through-12th-grade teacher, a firefighter, or an emergency medical technician to qualify for the program. Homes can be found on your state’s listing and are only available for purchase for seven days.
If you’re approved to buy a Good Neighbor Next Door home, you must sign a second mortgage note for the discount amount and occupy the house for a minimum of three years. After three years, the second mortgage note will be discharged.
HUD Dollar Homes encourages homeownership among low-income families by offering homes for sale for $1. These are REO homes that haven’t sold in the past six months and have a current market value of $25,000 or less. You must meet income requirements and apply on your state’s website, which is also where you’ll find available homes.
Taking advantage of government programs is one of Rosin’s favorite ways to bootstrap a new investor into a house. She’ll advise them to buy and occupy the home for the minimum required period while saving up money for their next investment, then move out and rent as soon as they can.
How to find cheap houses to buy?
The short answer is: Get creative and plan on putting in some work. While you might get lucky and stumble onto a bargain, you can increase your odds of finding a cheap house by putting together a plan and enlisting the help of an expert real estate agent.
Header Image Source: (Callum Blacoe / Unsplash)