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Should You Invest in a Foreclosure?

Greetings Investors!

Today we want to talk about a common form of long term real estate investment: foreclosures.  There is a lot to cover but we will try to give you the basics in this post and then if you have additional questions you can contact us.  Whether or not you should invest in foreclosures depends mostly on how much dirty work you are willing to put in to receive additional profits.  If you don’t mind a few (sometimes many) additional headaches you can get a great deal and solidify a long term positive cash flow.

The Savings
Of course the main plus is the cost, foreclosures can be anywhere from 10-50% cheaper than comparable properties depending on the condition.  Typically the worse shape a property is in the better the deal.  But this is not always the case, if you do your homework you can often find a property that only has cosmetic issues that are much cheaper to fix than structural and “guts” issues.  And then of course the opposite is also true, there can be hidden problems that could ruin your profits and make you wish you never bought the deal.  The moral is that you need to know what you are getting into, take advantage of the inspection period with a qualified inspector and you should be ok, but don’t you and you could be up a smelly creek.

The Seller
Another nice thing is that when you purchase them you are dealing with a bank that will ensure you usually have less issues and will never have to worry about current occupants vacating your property prior to closing.  While banks can present challenges of their own, for the most part they are highly motivated to move the property off of their books and so will be sure to meet important deadlines and close on time.  The downside is that they can also be inflexible when it comes to price reductions or modifications to the deal, the know they will find other buyer because they have great deals so they don’t need to bend to your wishes.  Again, do your homework at the beginning and you should be fine, but don’t wait until 10 days after going under contract to inspect the property, do it immediately and know what you are getting into.

Condos…Fewer Issues > Fewer savings
Since most of your money on a foreclosure will be made on bringing the property back into a marketable condition, it stands to figure that the more you can minimize exposure to major expenses the more likely you are to turn a nice profit.  While houses can site for many months or in some cases even a couple of years with no occupants and thus absolutely no maintenance done to the property.  This can and will lead to major problems including termites, decay, rot, rust, mold and countless other issues.  One of the biggest advantages to condos is that although the interior of the unit is left uncared for the exterior of the building will be continuously cared for by the Condo association and the other unit owners.  This is why we recommend starting with condos as your first foreclosure purchases because even though you may not get as good of a deal you lower your risk of significant loss.

Go for it!
It may be a bit painful your first go around but you will learn a ton and if you are smart and follow our suggestions you should be fine and end up with a property that required such little investment that your bottom line will always be positive.  If you want additional information or advice please contact us at 305-517-3900.

 

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