The PropertyLark Guide to Buying Foreclosed Homes, Part 1
As a real estate investor, you have to understand the market and look for the best home buying opportunities. Now that the federal foreclosure moratorium has ended and mortgage forbearance options are much more limited, we could start seeing a significant increase in home foreclosures.
Should you buy a home in pre-foreclosure or foreclosure? What are the best tips for buying foreclosed homes? These are the topics we will want to cover in this special 3-part PropertyLark Blog series. Today, we want to talk about the pros and cons of purchasing foreclosed properties. In Part 2 next week, we will cover the different types and stages of foreclosure. In Part 3, we will discuss the processes, laws and financing options you will need to understand as a foreclosed home buyer.
The Benefits of Buying Foreclosed Homes
The primary benefit of buying a property in foreclosure, as you might expect, is the purchase price. Foreclosed homes can often be purchased for pennies on the dollar. The banks, lenders or counties that take over these properties do not want to hold onto them for long. They will put them up for auction or list at below-market prices to get what they can out of them. This presents a great opportunity for real estate investors to buy up these properties at great prices.
Another advantage of buying foreclosed homes in today’s real estate market is that finding them is much easier than it used to be. There are many websites and real estate brokers that specialize in foreclosed properties and short sales. Most big banks have dedicated sites and easy-to-find information about their bank-owned homes available for sale. There are still some live auctions, but most foreclosure listings are found online and allow you to search efficiently for the best deals.
Home buyers in the PropertyLark network have exclusive access to our off-market deals and distressed properties that homeowners want to sell as quickly as possible. These aren’t all necessarily foreclosed homes, but they have been vetted thanks to our thorough analytics process. They are identified as excellent real estate investment opportunities and passed onto our qualified members.
The Downsides of Buying Foreclosed Homes
Unfortunately, buying foreclosed properties isn’t all fun and games. You can get houses for very low prices, but there are trade-offs to consider. Here are some of the downsides worth noting:
- Hidden Costs—Some foreclosed properties will have back taxes and liens attached to them—primarily those being sold at auction. Your purchase price may be super cheap, but the other hidden costs can add up and these fees must be paid to take over ownership of the house. The good news is banks will typically pay off any liens attached to a foreclosed property before they resell it. Auctioned houses often bring more significant hidden costs for which the buyer will be responsible.
- Property Repairs—Experienced investors will have a strong renovation plan for any property they purchase. Foreclosed properties often require the most work. They have sometimes been abandoned or the owner simply doesn’t take care of it because they know they are going to lose the house to foreclosure. They may even cause damage on purpose out of anger and frustration. Access to look over the property or perform pre-inspections may also be limited, so you have to be careful not to find yourself in a money pit that will cost more to fix up than it will ultimately be worth.
- Slow Process—Foreclosures generally come with some extra red tape and additional documents that need to be filed. The process can take more time than a direct home purchase, so you have to be patient and expect delays when dealing with banks and government entities.
- Heavy Competition—There are plenty of other eager and aggressive real estate investors out there looking for foreclosed homes. You may be facing some competition. You have to be prepared to act quickly when you find a good deal, and you have to be careful about being too aggressive with any offers. Don’t concede too much or pay above your budget if the property isn’t worth it. Let it be someone else’s problem if the deal isn’t right for you!
These are some of the standard pros and cons to understand if you are an investor looking to buy foreclosed homes. It’s important to do your research and find the best deals. Don’t just look at a cheap listing price or auction and assume that there is a ton of profit to be made. You still need a strong investment plan, thorough property analytics and a smart budget.
Stay tuned for Part 2 of this series next week!
If you are a real estate investor looking to make the most of your home buying opportunities, consider joining the PropertyLark network. Members have access to our incredible tools and resources. Fill out our contact form and brief buyer questionnaire to see if you qualify.