How to Buy Foreclosed Homes
They say Americans need not worry about another depression, but for many families, they are already experiencing a depression of their own. With the country’s financial crisis in full swing, Americans are losing their homes to foreclosure at such a rapid pace that foreclosure auction events seem to be taking place around the clock. In the state of California alone there are currently more than 1,000 foreclosures per day. What does this mean for first-time homebuyers or investors looking for a quick flip? Mainly, this means that there’s plenty to choose from, but it doesn’t mean you’ve hit the jackpot or that you will even save any money.
Buying Foreclosed Homes Usually for the Pros
Eric Tyson, author of Home Buying for Dummies, offers some solid advice on how to buy foreclosed homes for first-time homebuyers looking to purchase a home way below market and investors looking to make a “quick” profit. If you’re interested in buying a foreclosed home “you should be an experienced property buyer,” he says, preferably someone who has purchased at least four to five properties. As a first time homebuyer you, your inexperience will put you at a serious disadvantage. What may help the first-time homebuyer, however, is an excellent credit rating.
Beware of Foreclosed Homes’ Hidden Costs
Lenders are all too familiar with the risky nature of foreclosures. With conventional sales, the buyer has full access to the property prior to the sale. With foreclosures, the buyer may not have access to the foreclosed home at all prior to the sale. This means that there can be major damage, disrepair, and other unforeseen problems lurking behind the property’s bolted doors, problems that can quickly change a substantial predicted profit into a miserable money pit. It’s not at all uncommon for foreclosed homes to have serious plumbing and electrical problems, and even roof damage.
How to Budget with Foreclosed Homes
Unfortunately, repairs and construction related to plumbing, electrical, and roofing can end up costing more than they did to build these components into the home in the first place. The way to safeguard against this is to double what you expect to pay in repairs, and then subtract this amount from your best offer.
The next piece of advice on how to buy a foreclosed home has to do with the bidding process. You should always be prepared to walk away if the bidding gets out of control. If the price starts to climb anywhere near market price, simply walk away. At this point, it’s not worth the small amount of money you may save.
Buying from Bank vs. the Seller
The jury is still out on whether it’s better to buy a home that is at risk of being foreclosed directly from the seller or if buying foreclosed homes from a bank is better. Buying an at-risk home directly from the seller can, in some cases, be quite emotional for all parties involved. But it does have its benefits. You will at least have access to the home and you can have it inspected before the sale is finalized. The downside is: You probably won’t get much of a break on the asking price, as the owners may want to walk away with “something,” at the very least. With bank foreclosures, the possibility of significant savings and profits does exist, especially for the experienced buyer as mentioned above, but some may feel that the risks far outweigh the benefits.
If you’re interested in buying foreclosed homes or you need more information on how to buy foreclosed homes, simply visit any bank website to access their REO (real estate owned) properties. You can search through listings, set up e-mail updates for new listings, and save your searches to access later.
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