We got a great response from the write up on short sales, so naturally we need to educate you about the other side of the same coin: ForeclosuresForeclosures are homes that have been "repossessed" by the banks for nonpayment of a mortgage. They tend to sell at less than market price for multiple reasons.
Why foreclosures sell for less:
1) The property has not been properly cared for or even vandalized by the former owners
2) The property has been sitting, without care, for months
3) Vandals and thieves have stolen valuable parts of the home, like copper wiring and plumbing, or have graffiti on the home, vagrants have or do still occupy the home, used the toilets without water services to flush, etc
4) The property may have been a failed business such as a half way house, sober living home, child care, boiler room, etc and odd alterations have been done
5) Massive amounts of unpermitted, improperly completed, and/or unfinished construction has been done
6) The banks who now own the property do not understand the local market for the home, and the employees of the bank do not have a vested interest in getting top dollar for the home
7) The Real Estate agents who sell these homes are inundated with work, are underpaid by the banks, and do not have a vested interest in getting top dollar for the home
8) The banks demand very specific terms of sale, will completely rewrite your offer, will not do ANY repairs/credits after agreeing to an offer, and have a take it or leave it attitude
With that said, why would you want to buy a foreclosure? The bank is effectively paying you for the work, permit compliance, management, and maintenance that they are not willing to do.
The way that they pay you is through a reduced purchase price, which may result you actually having equity in the home after the pricing downturn is over.
While foreclosures are a good source of investments, even better deals can possibly be found in traditionally marketed homes. Some homeowners will price their homes for sale at foreclosure prices. BUT, these homes do not have all of the drawbacks that I listed above. So, you can buy a turn-key home (one that does not need any work to live in or rent out) for a foreclosure price.
Both of these types of homes are great buying opportunities. For the investor who is shy about making repairs and renovations, buying traditionally marketed homes can be a much easier undertaking.
4 comments:
I don't think foreclosure homes are good choices for 1st time homebuyers. It's a better choice for long term investors who has the time and money to fix up the properties, and collect rent long enough before gaining equity and ready to be put on the market again.
True. For a first time home buyer, trying to move into and live in a foreclosure is similar to camping. Your plumbing may not work, your pool may not be safe, the structure may not be stable, and any number of things could not be working by the time you close escrow. The last thing a first time home buyer wants to do it pay rent AND a mortgage while the necessary repairs are made. No one wants to shower in the back yard with a hose because the shower drain floods!
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