A great option for anyone thinking about homeownership, whether for a primary residence or as an investment, is to hunt down and buy foreclosures. This aspect of the real estate market is often overlooked, but the benefits to securing a property undergoing foreclosure are important to consider! Of course, not everything is completely risk-free, so it’s important to know everything there is to know about foreclosures first.
Why Foreclosures?
In short, investing in a foreclosure property offers the buyer freedom and pricing that they would not normally find in the regular housing market. The foreclosure process is a great way to save money with significantly lower listing prices (upwards of 28% on average). Not only this, it allows the buyer a great range of options for when to actually buy the home, including buying directly from the property owner, at auctions, or with a ‘Short Sale.’ Short Sales allow the buyer to purchase a foreclosed property for less than the amount owed by the titleholder, ensuring a great deal for anyone able to put money down immediately.
Because of the lower listing price, many buyers will also opt to utilize a foreclosed property as an investment purchase and renovate the property to turn a profit. Since buyers can get a great deal on a home, they can translate that savings directly into profitable renovations to make a significant amount upon resale.
How to Begin
Finding foreclosures isn’t the most obvious thing to do, unfortunately. A little bit of extra legwork is usually involved in hunting down foreclosure properties and buyers need to be ready to shake hands and make friends. While it is perfectly possible to drive around neighborhoods and look for “foreclosure” signs on the front lawn, it isn’t the most efficient way to go about it.
By establishing a network of contacts, buyers are able to keep their fingers on the pulse of the foreclosure market. It will pay huge dividends if the buyer can make connections with mortgage bank employees, real estate agents, and even the residents themselves. By doing this, you’ll be more attuned to the current real-estate landscape and able to jump on properties that come onto the market.
Real estate auctions are another method of finding a new property to buy. Auctions are generally listed in the local newspapers or online at sites like Craigslist and allow buyers to see several reduced-priced properties at once. Be careful of the competition, however!
Avoiding Pitfalls
Buying a foreclosed home isn’t all upside. The downsides to buying a foreclosure depend on the property itself. Never assume that the property you are looking at is no-strings-attached. From the home on the lot to the land itself, potential problems abound when looking at foreclosed real estate listings. Does the home have significant water damage? Does the land itself have drainage issues? Did the previous owners leave their collection of rusted cars in the backyard? These are all potential costs that will add to the purchase price in order to rectify.
For these reasons, getting a home inspector is essential, and will cost you much less in the long-run. You never know what’s behind the walls of the home you just bought and it’s always best to understand as much as you possibly can when factoring in investment prices. Most of the time, even after a home inspection, it’s going to cost around 25% of the purchase price in order to get an investment property renovated properly.
Foreclosures Can Save You Thousands…
…but they can also cost you extra, depending on your purchase. It’s important to get into the foreclosure market with your eyes open, understanding all the pitfalls along the way. After doing so, you will find that foreclosures are an oft-neglected way to get the perfect home at a significant discount!