Should You Invest In A Foreclosure?
Fmineral closings can be tempting, especially in today’s market. Home prices have risen by more than 18% over the past year, while foreclosures often come with a noticeable discount.
According to real estate analysis firm ATTOM Data Solutions, foreclosure prices were about 36% lower than traditional properties at the end of last year. That’s the difference between a $ 300,000 house and a $ 192,000 house – a pretty big savings for the average American.
Yet despite the money a foreclosure could save you, they’re not for everyone. They are also not particularly easy to find these days.
Are you considering buying a foreclosure as a real estate investor? Here’s what to consider before doing it.
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Repairs and renovations
Most foreclosures are done “as is,” which means whatever the condition of the home is, that’s what you get – so don’t expect the seller to pay for the repairs.
Sometimes that’s okay, and only minor flaws exist – things like peeling paint, holes in the walls, or stains on the carpet. In others, it is much more serious. You could have roof damage, plumbing or electrical issues, foundation issues, and more. And fix it all? It’s yours.
Often times you are not even sure what you are getting. With some foreclosures, you are not allowed to view the property before purchasing it. With others, you might not run into any problems until after you’ve presented your offer or even closed the house.
For these reasons, you will need to be prepared to work. You will either have to do the necessary repairs and updates yourself or hire a contractor to do it for you. Either way, you’ll need a substantial budget to support it.
Foreclosures aren’t exactly easy to find these days. For much of this year, due to the pandemic, foreclosures have been banned, limiting the number of distressed properties that have hit the market. As a result, there is little choice in many markets, and the available foreclosures come with serious competition, both from investors and traditional home buyers.
To make sure a foreclosure is the right decision for you, first study the struggling real estate market unique to your area. ATTOM has good data to pull from, including the major zip codes for foreclosures and the states and cities with the biggest increases. If you are in one of these areas, finding a foreclosure may be easier than in other parts of the country. You can also talk to a local real estate agent to get information about the land.
If you are looking for a quick and painless transaction, foreclosure is probably not the right decision. On the one hand, the foreclosure process can take a long time (the owner may not even be moved when you buy). Plus, the financing process usually takes longer, especially if you’re buying directly from a bank, lender, or government agency.
Sometimes offering all the cash can help speed up the process, but it all depends on the stage of foreclosure. Generally speaking, you can expect that buying a foreclosure will take a little longer than buying a traditional property.
Your goals should also be taken into account. Are you buying foreclosure to return? If so, what does your timeline look like and do you know how to add value to the property to get a good return on your investment?
Buying one for low cost housing? In this case, you may need temporary accommodation while you prepare the house.
You should also consider the risks (there could be more serious and costly problems below the surface), as well as how the property compares to other investments that you could use your money for.
Get advice before moving forward
Foreclosures can often be a smart investment, but it depends on a whole host of factors, as well as your skills, where you are and your schedule. If you’re not sure whether buying a foreclosure is the right decision, talk to your financial advisor and consult a real estate agent for more details on your local real estate market. They can point you in the right direction to help you achieve your goals.
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