Foreclosures: Deal or No Deal?
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With all the foreclosures out on the market and low interest rates, many people are thinking about jumping into the real estate investment market. This can be a very risky thing to do, if you don’t have the necessary knowledge and money management skills to handle unexpected expenses. Most veteran real estate investors will buy foreclosed homes without having to walk into them, however, they typically have put aside money, either their own or through hard money loans, to help cover the cost of renovating their new property before they try to sell it again. Unlike a well-maintained home that might need a few hundred dollars of repairs that could be covered with a cash advance on a moment’s pinch, foreclosures can come with a host of problems from electrical system failures to stripped appliances or copper piping that cost in the thousands to repair. It’s not to say you can’t get a good deal, but that in this day and age, you have to also be aware that the sales price you pay for a foreclosure can come with additional expenses that you must pay before you can return the property to the market.
Legal Issues
On top of unknown repair issues, you may end up having problems with back taxes being owed on the property or unpaid liens. Once the property is yours, you are also responsible for payment of these issues. You do want to have a careful title search done on the home, but sometimes that doesn’t uncover all the issues with foreclosures. If you aren’t buying the house at auction, and through a pre-foreclosure sale instead, you may even be responsible for evicting the tenants who reside there. Foreclosures are a good area for investing right now, but you have to have some idea what you are doing and have significant cash, in the form of loans, to help restore the property to its marketable self.
June 18th, 2008 at 10:31 pm
While foreclosed homes may offer real estate investors a good opportunity to buy low and sale higher… there are the unforeseen costs associated with buying bank owned homes (as you noted). The good news is that most foreclosed homes have been recently inspected for the previous owner, meaning that the home’s overall condition is going to be fairly good and should prevent buyers from having to make major repairs.
June 21st, 2008 at 9:25 pm
I was looking for forclosures in Downtown Boston, and then realized around 99% of them are in low-income areas…….. I thought you could buy a luxury condo in downtown boston forclosed, but its rarer than many people think. There’s lots of talk about forclosures, however you’re certainly not going to be able to buy a luxury condo cheap! Boston City Properties - Boston Real Estate has a good article on this, and the fact that luxury condo forclosures are really just hype. If they did exist, tons of home buyers would be looking for them, and they would basically be the same price as regular condos.
June 28th, 2008 at 11:43 am
Interested in foreclosures in Florida as I believe this will be the first area in US to recover.
What sort of discount would you expect on a Florida foreclosue?
Accept that there could be problems but it could be a risk worth taking. Europe investora can also gain on currency exchange when the dollar strengthens.
July 4th, 2008 at 6:02 pm
It’s very important to learn everything before jumping in - I see so many people thinking they can buy a house and make money on it and find themselves bankrupt and divorced as a result.
July 10th, 2008 at 1:07 am
I agree that many of these foreclosure homes need a lot of work. Some of these properties are in such bad shape that buyers who are willing to spend money to fix up homes walk out shaking their heads. I went into one house last week where some kind of insect started biting us right away. My buyer looked at me and said, “let’s go.”
An alternative is to consider a short sale where the owner is still in the home. You make an offer that is less than the mortgage, and it is taken to the lender. I’ve seen the lenders take a long time to respond, but the homes are generally in very good condition and the banks are dealing. Several of my buyers have made very good deals going with this option.
Lynn Byrne
July 14th, 2008 at 11:05 pm
I’d say DEAL. Bank REO’s are on the rise and that means more negotiating power for investors. If you have holding power, now is a great time to buy
July 15th, 2008 at 9:58 am
Buying foreclosures can be tricky business. Like you said it is important to do your homework. It is also advisable to use professionals to help you find out all you can. You should also try and look at what work has been previously done and find out who did it. If they were paid or not paid could be valuable information.
July 17th, 2008 at 7:02 am
I saw that on http://www.bostoncityproperties.com that foreclosures are a lot of hype, and the fact that so many people are looking for foreclosed condos that they are the same price as regular ones is a contributing factor
July 22nd, 2008 at 6:29 pm
The legal issues alone keep most buyers away from foreclosed properties. There is a reason they sell for less then the average homes in the area, and each of those reason could cost a buyer a lot of money if they aren’t careful.
July 25th, 2008 at 5:09 am
I have been investing for 6 years+ and an agent and I can tell you their are a lot of things to watch out for. Their are messy foreclosures, liens and a big waiting game, definately work with a pro. I am always offering advice on my blog to help people not make these mistakes, I have some good articles on short sales which is timely in this market.
July 29th, 2008 at 3:37 pm
It,s best to be a leader than a follower, as a follower you arrive to a burnt out market and get caught out.
August 21st, 2008 at 4:13 am
I have seen many homes that are in foreclosure status or short sale that had been bought by a flipper without enough cash to handle the extensive repairs needed. Over estimate and then add more. If you are savvy about the costs there can be some good deals out there.
August 25th, 2008 at 6:51 pm
If debts are going to cause you foreclosure you need to
google IVAs and DNPs. There are ways out of debt.
August 27th, 2008 at 5:13 pm
I find that a lot of the time foreclosures are not as great a deal as many people think that they will be. Foreclosures often need a lot of work, and once all is said and done many of the profits can be lost in the cost that is incurred while fixing the property up. I have had many buyers that initially want a foreclosed property, but in this buyers market there are such great deals in the regular market that buying a foreclosed property is not always better
September 2nd, 2008 at 11:11 am
Bank repossessions or as you guys call them in the States “foreclosed homes” are not always the great investment that you think they may be.
We have had some unbelievable bargains come from the local banks that we have contracts with, however - the administration fees which roughly equates to 10% here in Spain can push the price up straight away by thousands.
Also, banks here in Spain are trying to retrieve too much money on properties that have been repossessed and they do not work out to be good deals for either buyers or the banks as they get stuck with them.
Pending bank repossessions like the last comment posted is a much better way of taking advantage of someone elses misfortune, so you do not have to pay any of the bank charges and the owner may well take a large knock on the price instead of the bank taking back the property.
September 8th, 2008 at 11:37 am
Having done many foreclosure deals, I am qualified to say they are a money pit. Don’t go in thinking that you can do it on the cheap cos that is rarely the case.
If you have the money though, go for it.
September 9th, 2008 at 11:04 pm
Another factor of concern is the time spent in these deals.
I have a young teacher as a buyer client. We have been waiting for weeks for the bank to simply decide if they want her offer.
It can really be nerve shattering to sit and wait day after day with no news forthcoming…
I write quite a bit about the foreclosure market in Florida as that’s where I am licensed and I run a Florida real estate license school. Some have estimated that lately 3 out of every 5 sales in my neck of the woods have been out and out bank REO, or short sale with the bank about to be the owner! Toughmarket right now, and I have been teaching since 1986!
September 15th, 2008 at 10:29 pm
This is a great buyers market right now, but it is also a huge gamble. I have seen some great deals from foreclosures, but I find it easier to set up some creative financing with a home seller.
September 16th, 2008 at 4:35 am
So many foreclosure and preforeclosure homes aren’t even as good of deals as regular MLS listings. Motivated sellers are realizing that they need to drastically drop prices if they want to sell in todays market. Banks, are a little slower.
September 17th, 2008 at 9:38 am
I am a Letting Agents in Southampton UK, but do also invest in Buy to Let Properties and Property Development, I have bought properties without setting foot inside them in the past but would not advise this to anyone without the experience and knowledge which comes through years of working in the industry, especially in the current market of the UK credit crunch.
September 21st, 2008 at 9:45 pm
buying a house is not a simple as it seems, and you can get easily burned if you don’t know what you are doing. So make sure you do some research frst before commiting to something you may later regret.
September 30th, 2008 at 5:50 am
I agree with you that jumping in the bandwagon-foreclosure business needs alot of planning.It entails alot of tedious works and one should know the ins and outs of the biz to be able to profit here.Thanks for sharing it here.
October 10th, 2008 at 1:55 pm
Ah yes but the trick is to make sure your money goes to the safest place when things get tough…
Normally when the stock markets fall people turn to gold and property for a safe home as even if property falls it does so slowly normally but at least you can live in it while things recover especially if you buy where I am in the South of France
October 13th, 2008 at 3:59 pm
Understanding the tenant rights is about the most important thing you know. I suggest that anyonedoing this take class and learn everything possible before starting
October 14th, 2008 at 8:24 am
Homeowners are giving up unnecessarily these is the unfortunate truth.That’s because there are things that can be done in order to prevent a house from being lost to foreclosure. In fact, foreclosure laws are designed to make foreclosure the last recourse for both homeowners and lenders.
October 16th, 2008 at 3:58 am
yeah i’ve often thought about buying property to rent but with the current economic climate in the UK you never know whats going to happen one day to the next.
October 21st, 2008 at 7:10 am
Foreclosure is a scary thing, and of course you’ll always have people and investors hoping to cash in on it all. Some valid points you raised about the need to be vigilant before making quick investments.
November 6th, 2008 at 11:47 pm
That’s a great idea Lynn. I’m not sure why more buyers don’t take this avenue, it’s sort of like a win-win situation for both parties.
November 9th, 2008 at 11:21 am
^ Precisely, consider the basic expenses like renovations first because as what Daytona has said, this would surely needs alot of works to be done.
November 12th, 2008 at 8:03 am
It is very important in everything that you do, and get into, to know every single details attached to it. The effects and benefits you can get, the advantages and disadvantages of engaging to it, all are very important especially when it will soon lead to a legal problem which no one would like to happen. You really need to see the risks and check if you can handle it.
November 18th, 2008 at 8:46 pm
I’ve heard some goody things about this blog. Remember to balance the pics with the text tho
but over all very nice post, keep up the good work
November 19th, 2008 at 3:24 pm
Are there any signs of the Florida market turning any time soon? I believe that as soon as the USA market turns, the rest of the world will be quick to follow suit. Foreclosures are only just starting to happen here in South Africa, and hopefully the USA market turning will nip it in the bud.
James
Real Estate Buyers Agent
http://www.propvantage.com
November 21st, 2008 at 6:05 pm
It was mentioned in a book called “Rich dad poor dad” that buying foreclosed properties is a good investment. I am not sure if I agree or not, but I think some real estate agents are finding this way as an easy means to make big money.
November 23rd, 2008 at 3:09 am
I agree wholeheartedly about being prepared for investing in foreclosures, as far too many seasoned real estate investors make novice mistakes when they start buying foreclosures.
One piece of advice I would add is that all foreclosure purchasers buy owner’s (not to be confused with the mandatory lender’s) title insurance. I would also drop by the property before the auction to see if the homeowners are still living there, as you mentioned that they can be both damaging and expensive to remove.
As a final note, I came across a good article on NuWire Investor the other day about successfully buying buying real estate at foreclosure auction: http://www.nuwireinvestor.com/howtos/how-to-buy-real-estate-at-foreclosure-auctions-52204.aspx.
Hope this helped!
-Brian
December 15th, 2008 at 7:11 pm
Hello.
I came across your website a few months back when searching for resources for my clients. Since then I have found the articles very useful and would like to start recommending it to my clients as a web resource. I think I can send quite a bit of clients in your direction via word of mouth and am hoping that you can return the favor by linking to my website perhaps in the footer or links section.
My specialty is Tampa Real Estate and my clients are 75% domestic and 25% international buyers as well as persons seeking financial assistance with preventing real estate foreclosure. Its quite a broad range of people.
Tampa Real Estate
Tampa Home Search
Tampa Real Estate
If you would be interested in sharing this mutually beneficial relationship, please let me know.
-Sheila Calistri
http://www.buytampafl.com
(813) 841-2000
sheila@buytampafl.com
February 13th, 2009 at 3:47 am
While there are risks involved in buying foreclosed properties - such as the extensive amount of work that some homes may demand - the recent U.S. economy has pushed many new and well-kept properties into foreclosure. It is not necessarily the state of the home that is in disrepair but, as of late, the state of American credit. Because of this, more and more foreclosed homes are in satisfactory condition.
May 8th, 2009 at 12:44 pm
It’s so important to learn everything before jumping in - I see so many people thinking they can buy a house and make money on it and find themselves bankrupt and divorced as a result!