Are foreclosed homes a smart investment? The answer is a resounding, Yes! But, there are a few catches. First, you need to understand the foreclosure process. Secondly, you need to be able to wait out the housing crisis.
Currently, more than 11,000 million foreclosed homes sit vacant. Nearly every metropolitan city street is peppered with distressed properties in need of repair. The majority of these houses are priced to sell. While purchasing houses under market value is the key to turning a profit, it is of particular importance to thoroughly inspect every inch of foreclosure real estate.
Rarely will you find foreclosed homes in perfect condition. Keep in mind the previous homeowner was struggling to make ends meet. Otherwise, they wouldn't have lost their home to foreclosure. When homeowners can't afford their mortgage payments, they generally can't afford regular maintenance, let alone extensive repairs or renovations.
Additionally, the majority of foreclosure properties sit vacant for two to three years. If the property doesn't sell at foreclosure auction, it reverts back to the bank and becomes real estate owned (REO) or bank owned property. During this time, little is done to maintain the house.
Oftentimes, REO properties become the target of vandalism. Walls are spray painted with graffiti; windows are broken out; carpet is removed; bathroom fixtures and appliances are stolen. Although lenders price foreclosed and bank owned homes under market value, repair costs should be carefully considered.
Investors who purchase foreclosed homes typically must engage in physical labor to return the property to livable condition. Some investors prefer to hire contractors to perform the work, while others take the hands-on approach. Regardless of the method you prefer, it is crucial to obtain cost estimates prior to purchasing the property. Otherwise, the cheap home for sale could potentially become an enormous money pit.
Real estate investors who have never purchased foreclosure properties should consider working with a private investor or realtor who specializes in this niche market. Foreclosure specialists have access to numerous properties and can help investors locate homes more efficiently.
Unless you are able to purchase foreclosed properties with cash, it is a good idea to obtain prequalified financing. Not only will this step help you determine exactly how much you can afford; prequalified buyers generally have additional purchasing leverage, such as no closing costs.
Investing in foreclosure homes in today's recessed economy is not without risk. Minimize your risk by conducting thorough research and working with qualified professionals. Experts suggest investing in affordable housing to be used as rental property for 3 to 5 years. Reason being many families have been displaced by foreclosure and in need of decent housing. Seek out foreclosed homes in areas with access to good schools.
Published on November 24, 2008 at 02:26 AM