In the best of times, foreclosures happen. When the economy tanks, they happen much more frequently. This is devastating to those who lose their homes, but it presents an opportunity for real estate investors and those who want to get a great deal on a home for themselves.
It’s no secret that foreclosed properties are sold at much lower prices than your average home. But are they really worth it? Here are some pros and cons to think about before you spend your money on a foreclosure.
* You can get a great deal on a home that is under foreclosure. These properties are often sold at auction, going to the winning bidder. So instead of talking the seller into coming down on the asking price, you simply have to beat the prices that others are willing to pay.
* The previous owner will often be out of the property by the time the foreclosure sale takes place. That means that you can move in or start renting it out immediately after the sale is complete.
* Properties that are held by the bank and not sold by auction are often easy to finance. The bank may offer favorable financing terms since it is in their best interest to sell quickly.
* If you can catch a home in pre-foreclosure (the time between the issuance of a Notice of Default and actual foreclosure), you might be able to negotiate a good deal with the owner. He will likely want to prevent foreclosure so that he can salvage his credit rating, so if you can offer him a deal that the lender will accept, he will probably be willing to consider it.
* Foreclosure properties are often in poor repair. If a homeowner can’t afford to pay his mortgage, there’s a good chance he hasn’t been able to afford to maintain his home properly, either. That’s why it’s so important to inspect before you even think about buying.
* If the former homeowner was evicted (or worse, you have to evict him after purchasing the property), he may retaliate by trashing the home. He may also remove fixtures to sell or use.
* If the property is sold at auction, there’s the chance that the price may be driven up too high. To avoid overpaying, learn as much as possible as you can about the property. Decide what a reasonable price would be, and don’t go over that figure.
* Properties purchased at auction must be paid for immediately. If you don’t have cash or a line of credit to work with, you won’t be able to participate.
The foreclosure game is one that can get you properties for less. But if you’re not careful, it’s easy to get burned. Doing your homework is essential if you want to come out a winner.