Foreclosures

The third level is what we commonly hear about- foreclosures.  Actual foreclosures are also referred to as REOs, or Real Estate Owned Properties.  Though there is still risk involved, it is a much safer bet than buying at auction.  True, you probably won’t get the quite the dollar deal that you could at an auction, but it is a much more appropriate investment for the average person!

With a foreclosure purchase, you have the opportunity to do an inspection and a title search – and to get a mortgage.  This was sounding a lot more comfortable to me than an auction already!  And also the owners generally are not still living in the house so you don’t have the responsibility of evicting anyone.

Jason pointed out to me that a potential buyer needs to be aware of the condition of  the foreclosed property.  If the previous owners were unable to pay their mortgage, chances are the home was left in a state of disrepair due to their inability to pay for basic upkeep.  It is common to find unkempt yards, broken plumbing and in some cases previous owners who even took the bathroom fixtures with them!  And even if the owners didn’t leave the homes in total disrepair, foreclosed homes have usually been sitting empty for a while without anyone tending to them, so there are usually costly repairs to tend to no matter what.  Unfortunately, we’ve all heard about angry former owners who purposely sabotage the property.  One story I read told of a former owner filling all the pipes with cement before he left…Hence the term – buyer beware!

Also be prepared to deal with unreturned phone calls from the bank and trouble getting into see the house to schedule inspections.  Even though the banks want to get rid of these properties, from what we hear, they don’t always make it easy for you to buy them!

Do Your Homework

When buying a foreclosure, there is more to consider than just the price of the property.  Do you know the neighborhood well? Are there many other foreclosures in the area that will affect how quickly prices rebound?  Do you plan to live in the house for a long time or are you trying to flip it or rent it out?

To me, it seems like buying a short sale or a foreclosure could be a good opportunity – for the right person under the right set of circumstances.  But I would only suggest delving into these choppy waters if you are an experienced real estate investor yourself or if you have a fantastic adviser at your disposal.

I know it might be tempting for first time buyers to get into the market at a good price, but in my opinion, buying a foreclosure would likely be quite overwhelming for a novice home buyer.  In addition,  keep in mind that laws differ from state to state, so it is important to speak with a local real estate professional to find out what the legal landscape is like in your area.  Buying foreclosed properties, no matter what phase of foreclosure, is definitely a “No Pain, No Gain” situation – the trick is in finding out what kind of a risk/reward scenario is right for you!

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