This article came out over the REALTOR network last week providing a look at a FORBES review of foreclosure market. Before you think it’s because we have a lot of foreclosures, think again. The reason we’re in a top 10 list is because we are noted as one of the better places to pick up a foreclosure where there might be a bargain in the making. With housing prices having remained solid and our economic forecast still good, picking up a home in foreclosure could be a good deal – IF you know what you’re doing.
But let’s quickly outline what makes a good deal:
1. Price – many foreclosures do not have equity built in to them so you have to choose wisely so you don’t pick a loser. You must do your homework!
2. Location – getting a house cheap isn’t a deal unless it’s in an area that people want to live.
3. Pre-foreclosure can be better because you can use financing to purchase the home. Buying a foreclosed home on the courthouse steps requires cash.
4. Having an idea of what to expect the condition of the property will be and having the resources to fix problems and get the home ready to resell or turn into a rental.
Many people don’t understand the mindset of a person that is in foreclosure. Of all the homes I’ve ever had to walk into foreclosure ones are the worst. Usually they are filthy, there is a lot of deferred maintenance, and more. You don’t want to know about the times I’ve walked in a house where the stench is so bad that it makes you almost lose your cookies, so to speak.
5. If you’re planning to turn the house into a rental, be sure the home you’re buying meets the definition of a cash flowing property. Buying a $600k foreclosure with financing, only to turn it into a $2800 a month rental, is most likely going to be a bad deal. Do the math BEFORE you buy.
6. Do your homework on other issues. Many foreclosures can also come with other liens on the title that you don’t want to take on as the new owner. If possible, you’ll want to learn how to do the due diligence you need to not get a big surprise at the end of a transaction.
