Is it a good idea to buy a foreclosed home or not? If you ask me, my answer is yes… if you know what you are buying.
The house we live in currently is a foreclosed home. I bought it before Greg and I got married. It was in very good condition when I bought it. The bank actually came in and painted it a hideous soft pink color— every wall was the same hideous soft pink color…ugh.
I remember looking past the paint and looking at the character, structure, neighborhood, furnace, roof, etc and making the decision to go ahead and buy it. It was under market value for the neighborhood. I was 24 and didn’t really know anything about real estate at the time, but just knew what people told me to watch for.
The roof was original and so was the water heater, furnace, air conditioning unit. The house was built in 1993. My neighbor at the time actually was a co-worker so I lucked out there. She gave me the scoop on the neighborhood and the house. She confirmed it was in good condition. I bought the house in March 2009 and in the meantime we have replaced the roof, the windows, part of the water softening system and I think that has been it. If I miss something, Greg will correct me…LOL. And still I would recommend buying a foreclosure. These expenses were things we expected because of the age of the house. If you get a good deal, expect you may need to do some repairs in the future.
So again, fast forward a couple years to our purchase in 2013 which was another foreclosed property. That was a little scarier for me. Greg has this way of saying “oh honey, don’t worry about those stairs that are falling apart, it’s fine.” When we assessed that property, all in all it really wasn’t too bad. The side that was occupied needed a lot more work than the side that was vacant.
We decided to repaint, buy new carpet, update the kitchen, update the bathroom a little and we added an air conditioning unit to that side right away. We were able to get it rented pretty quickly after we fixed it up.
So here are a list of pros to buying a foreclosed home:
- You can get a deal. Yep, you can buy under market value for the property and have instant equity.
- You get to do some renovation. If you enjoy seeing the fruits of your labor, a foreclosure is for you. Most times, they are not in great condition because the person who owned the property could not keep up on the mortgage so the house/property may reflect some neglect.
- Pre-foreclosed properties may be even better. If you can find out that a house is under pre-foreclosure, you may be able to work out a great deal with the owner as they just want to get rid of the property.
- REO (real estate owned) property is beneficial because you have time to inspect it and it is clear of all back taxes. If you are buying directly from the seller, they probably will not want you to do an inspection. There probably will not be time. If it is bank owned, you have time to do an inspection to make sure you know what you are getting into.
Cons list for foreclosed properties:
- Condition of the property. You want to make sure you look very closely at what you are buying to make sure you can handle what you are getting into financially. Consider walking through the property with a contractor or a friend who knows how much things cost to renovate. We did that with the foreclosed duplex we bought in 2012.
- It can take longer to buy the property. It can take longer for the paperwork to go through with buying a foreclosure. Not necessarily a bad thing but just be prepared to wait a bit longer if you do end up wanting to buy a foreclosure.
- If you buy from a foreclosure auction, they may want your money in 30 days. Yep, there are foreclosure auctions where you can bid on houses but they would require an immediate deposit and the full balance in 30 days.
- You may not get a great deal. Look at what you are buying and look at the houses in the neighborhood? What are they selling for? Compare prices per square foot, number of bedrooms, bathrooms, etc. Make sure you are getting a deal.
So there you have it. A short list of the pros and cons of foreclosures. Do you have any personal stories of a buying a foreclosed property? Was it a good or bad investment and why?
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