Buy a Foreclosed Home?

Sep 17, 2013 by

foreclosed home

Would you buy a foreclosed home?

What do you think about buying a foreclosure for your next home or maybe as a rental property investment? If you’re in the market, have you investigated foreclosures in your area?

U.S. Foreclosure Trend

Depending on where you live, the number of foreclosed homes on the market may have dropped a bit or quite a lot over the past couple of years. Here are recent data from RealtyTrac®.

If you live in Nevada, Florida, or Ohio, you’ve still got lots of foreclosures to choose from. But you Montanans and North Dakotans might have to look hard to find a good foreclosure deal. In any case, a service like Foreclosure.com can be invaluable and a huge time saver if you want to check out foreclosures on the market.

Foreclosure Buying Cautions

About the time the real estate market had crashed quite a lot I briefly considered investing in a foreclosure in Minnesota, where I then lived. I looked at several properties and came away shocked by the condition of some. I eventually got scared off of the idea, and that turned out to be a good thing because real estate values continued to drop quite a lot more from that point.

Conditions are quite different now. Home real estate market values are mostly rising, but plenty of inventory remains and good deals may be had by those persistent enough to do the research. Before you dive in, consider these tips:

  • Get pre-approved for a mortgage to boost your bargaining power.
  • Choose an agent with lots of foreclosure experience. (Today finding an agent without foreclosure experience may be nearly impossible!)
  • Utilities may have been turned off for some time. This raises the prospect of damage or deterioration a typical home inspection is not necessarily designed to uncover. Remember that foreclosure sales are usually “as is.” You need a real professional to assess any property before you buy.
  • Homeowners are required to make disclosures about a property. But the homeowner is long gone and no one from the bank has ever lived in the home. Talk to neighbors and research building permits for the property at city hall.
  • Check for liens on the property.
  • Re-key all the locks and otherwise secure the property as your first order of business after closing.

Have You Bought a Foreclosure? Would You?

Have you purchased a foreclosed home? How did things turn out? Are you tempted by the potential of a great deal to consider buying a foreclosure, or are the unknowns just too scary for you?

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  • Suburban Finance

    Our foreclosure system in Canada doesn’t have the potential that yours does in the US for big earnings, but I would consider buying one if it did.

    • http://mymoneycounselor.com/ Kurt @ Money Counselor

      And the housing value crash never really hit Canada, right? At least not yet?

  • http://www.debtroundup.com/ Grayson @ Debt Roundup

    My friend bought a foreclosure and it ended up costing him big time. The inspector missed many things along with things that one would see. This has kept me away from that market.

    • http://mymoneycounselor.com/ Kurt @ Money Counselor

      Ouch. Yeah, I think a person would need to hire something more than the usual house inspector before buying a foreclosure. A more in-depth assessment is needed, and a look at things a ‘normal’ house inspection likely doesn’t include.

  • Leslie

    I currently help my landlord manage his properties and he has been talking about looking at foreclosures this spring to expand the amount of rental properties he owns or potentially flipping them.

    These tips are great! Thanks for sharing!

    • http://mymoneycounselor.com/ Kurt @ Money Counselor

      Your landlord probably knows what he’s doing. Flipping, in particular, takes a lot of experience to be successful.

  • MoneySmartGuides

    I would definitely consider, but definitely only after careful consider and plenty of research on the topic and on the house. Definitely would take your advice and only go with an agent with lots of foreclosure experience and ask them lots of questions too because they can tell you other helpful hits as well.

  • http://retireby40.org/ Joe

    I would consider it. I think it’s not as good of a deal now, but maybe I could find something. If we ever move to Santa Barbara, that’s probably the only thing we could afford.

    • http://mymoneycounselor.com/ Kurt @ Money Counselor

      If you ever move to Santa Barbara, please set up a guest room for me, preferably equipped with a wine bar. :-)

  • Charles@Gettingarichlife

    I wold buy foreclosures but here in Hawaii they were very rare. I would hold and not flip the property.

    • http://mymoneycounselor.com/ Kurt @ Money Counselor

      Charles, what would you say is the reason for the rarity of foreclosures in Hawaii?

  • http://www.financialramblings.com/ Michael @ Financial Ramblings

    My main concern at this point would be that the available inventory has been (mostly) picked over by big, institutional. Thus, whatever’s left is likely to be considerably less attractive than the “average” foreclosure. But who knows? Maybe I’m wrong.

    • http://mymoneycounselor.com/ Kurt @ Money Counselor

      Hi Michael, I think that’s a valid concern. I know there’s been massive investment in foreclosures by some hedge funds and others. I wonder though how ‘picky’ they are. The strategy might be buy 5,000 foreclosed homes in one batch and if 1,000 turn out to be lemons, that’s okay because we’ll still make a killing (they think). Would cost a lot to evaluate homes one-by-one seems to me. But, as you say, who knows!

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