Foreclosure: Benefits Of Buying A Foreclosure

Due to the real estate and credit meltdown of 2008, foreclosure rates have skyrocketted to historical levels.  Mortgage lenders do not want to be landlords and do not want to hold any properties on their inventory.  Mortgage lenders throughout the country had more real estate owned, REO, properties on their books and were eager to unload their inventory.  Unfortunately, many foreclosures were listed at or above in many parts of the country and mortgage lenders needed to readjust their values.  There are many benefits for a home buyer to purchase a foreclosure and the most single benefit is getting the property below market prices.  Many home buyers and property investors got on the foreclosure buying bandwagon looking for deals.

Disadvantages Of Buying A Foreclosure

There are many disadvantages in buying a foreclosure as well.  Most mortgage lenders who list their foreclosures, they sell them as is.   Many foreclosures are in need of repairs and most first time home buyers are limited with reserves.  Besides coming up with the down payment, they need to come up with money for the repairs which cannot be financed unless they apply for a FHA 203k mortgage loan which means a higher interest rate and more paperwork.  Some foreclosures require tons of work and a buyer of a foreclosure needs to really think about the acquisition costs as well as the renovation costs.

Appraisal Issues On Foreclosures

Another issue home buyers of foreclosed properties face is appraisal issues. FHA appraisals specific require that the home is in liveable condition and it is safe and secure and that all electrical, plumbing, and HVAC is in working order.  Many foreclosures are not in the best condition and may disqualify home buyers who are getting a loan and need an appraisal done.  Conventional loan appraisals are pretty much the same and the conventional mortgage loan lender will not secure a mortgage loan if the home has kitchen cabinets missing.

Flipping Homes: Making Money Buying Foreclosures And Flipping For Quick Profit

There are hundreds, if not thousands, of informercials or books about getting rich quick by flipping foreclosures with no experience needed.  As a real estate investor for the past 20 years with experience in owning and managing 3,000 residential units, it is not that easy.  Many folks feel that the term foreclosure is equivalent with bargain basement prices.  Not always the case.  Many foreclosures can be purchased below market value but the majority of the foreclosures are at market prices or only slightly below market prices.  For those who buy foreclosure at super cheap prices may need to spend a lot of money renovating the property to make it marketable.  The bottom line, nothing is for free.   Yes, you can make money flipping foreclosed properties but you need to be extremely careful at your acquisition and rehab costs and the comparables.

Foreclosures Are Sold As Is: Get Full Blown Property Inspection

Almost all foreclosures are sold in an as is condition and mortgage lenders do not want to get involved in any repairs nor allow the buyers to do any repairs prior to closing.  Minor items light a burnt out light bulb or leaky toilet will not make or break a home buyer but major foundation or structural issues will.  I strongly recommend that you hire a professional property home inspector to fully inspect all aspects of the property.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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