How can you tell a bad foreclosure?
Buyers be wary of unpaid liens that can range from mortgage debt, taxes, construction loans, home equity lines of credit, and possibly a second or third mortgage. Any of these obligations could possibly become your responsibility as a buyer when you purchase a property in foreclosure.
What are the costs associated in buying a foreclosure?
Cash is King as they say, and the best opportunities are for buyers with cash. If you are an investor and are planning to rent or lease a potential purchase, even resell it for a quick profit, make sure you consider carrying costs. These can include sales commission, vacancy, taxes, insurance, and ongoing maintenance. If you have ever built a home before you know that nothing comes in ‘at budget.’ In the same way, when you are renting property, after you have calculated all the expenses add on another 10 percent. Trust me, you will need it!
How does choice of neighborhood affect an investment in a foreclosure?
Avoid neighborhoods overrun with foreclosures and short sales. Locally, for example, we have seen new(er) neighborhoods that never really got off the ground when they started being developed 2-3 years ago. If you are the first buyer to purchase a home in a neighborhood through a foreclosure sale then you have a better chance of being ‘in the money’ on the day of closing as compared to the investor who is the third or fourth (or fifth) to get a ‘great deal.’ At some point, ‘the next’ foreclosure purchase is not so much a good deal anymore and just another ‘comp’ for the neighborhood.
Remember if you are looking in an area of steep discounts off list price that there maybe a reason for it. As in buying a primary residence for yourself ‘pre-foreclosure craze,’ shop in well established neighborhoods with good schools. This is still about Location, Location, Location.
The Next Step; and really it should be labeled the First Step
- Get preapproved for a loan before you shop for a foreclosure.
- For investors or second home buyers, understand that financing will be more difficult and more expensive than financing a primary residence.
