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Moneygram

Are Homes In Foreclosure Good Investments?

Foreclosure Home For Sale Sign and House
July 9th, 2014

Who doesn’t like to make easy money? This is the attitude that made foreclosure investing a booming industry these days. Besides, the premise seems simple and sound enough. Banks don’t want to bother with foreclosed homes, so to get their money back quickly they sell them off at heavily discounted prices. You swoop in and buy them, then you invest a little time and money sprucing up the property, and then sell them at fair market value. Voila! Instant profits!

But actually, it’s not that simple.

So if you are contemplating putting your money, time, and effort into foreclosure investing, make sure that you have ample knowledge and experience about the following factors:

  1. Market values in the area. Are you sure that the true market value of the home represents a significant profit margin for you? You need to have experience to know how much the foreclosed property will actually sell on the open market. You need to know how much the properties nearby are selling for, and how much comparable homes in the neighborhood are worth. If you have only the vaguest idea, then it’s time to give up.
  2. Total expenditures. In many, cases a foreclosed home will require extensive repairs so first you need to make sure that you have the budget for it. Then you have to check out the property, preferably with an expert to properly assess the property. Some people vandalize the homes they’re about to lose. You may also find that there are squatters living in the property, and getting them out may have legal complications. Some properties which may have endured a winter without adequate maintenance may now require extensive and expensive repairs for the winter damage.

It’s not just the property itself which you need to research on. You also need to find out about the land the home is sitting on, as that can affect the price as well.

  1. Legal issues and procedures. First of all, you have to make sure that you can get ownership free and clear. Is there a liens or a loan on the property? You’ll need to do some title searches to make sure that you’re actually paying the owner of the property. You also have to check out the state laws regarding the sale of the foreclosed property. Some previous owners may file a suit to prevent the sale from pushing through.

If the property is still occupied, then that adds another layer of complication. Again, you need to have a lawyer clarify your situation. Factor in the time you have to deal with a bank, and the entire process is not as quick and easy as it seems.

Conclusion

If you are a newbie to real estate, then foreclosed homes are not ideal investments for you. There are too many complications to consider, and you can get way over your head quickly. You need a lot more experience to succeed at this.

But if you do have the requisite experience, then you can try it out. Just make sure that you have the knowledge, the money, and the patience to see it through.


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