For anyone who is looking to break into the home buying market — and especially for those who are feeling the competition of rising prices, buying a Foreclosure property could be an option to own for less. But what is a Foreclosure property? When an owner defaults on their mortgage, the property can be scheduled for sale at auction. If the property does not sell at that auction, it will then get foreclosed on and it then becomes a Bank-Owned property. Like all investment decisions, there are many things to consider when opting to purchase a Foreclosure property. If you’re wondering: “Should I buy a Foreclosure?” or “What are the pros and cons of buying a Foreclosure?” read on because you’re in the right place. If you are ready to move on and learn the basics of buying a foreclosure, learn more here.
How To Find A Foreclosure Home
Foreclosed homes can be found on Foreclosure-specific websites such as www.auction.com. Some real estate pros even specialize in Foreclosure properties so keep a strong network. Individual counties often have auctions on the courthouse steps. The property is auctioned to the highest bidder at a publicly announced place, date, and time. Notices can be found in local newspapers and are often posted online.
Benefits of Buying Foreclosure Properties
Lower Pricing Possible
The biggest motivator for most people who purchase a Foreclosure property is simply that they may cost less than a property bought in a traditional real estate transaction. Due to the nature of the sale, many homes can potentially end up going for much less than the market price in the given area.
High Renovation Potential
Unlike typical home listings that are often extensively renovated before going on the market, Foreclosure properties are usually sold as-is to fetch a higher price. This means buyers are more at liberty to fix up their new property the way they would like. Less undoing and more enhancing gives the buyer a finished product more to their taste.
Potential High Return on Investment
Investing? If you want to buy a Foreclosure property for resale, the margins for profit could be greater since you may have acquired the house at a price lower than the market. Making renovations and improvements to the property can significantly increase its market value, and this appreciation is something an investor could benefit from when the time comes to sell it.
Risks of Buying a Foreclosure
Despite the many benefits of buying Foreclosure properties, you may want to watch out for certain issues that may arise. Read about these risks below.
Buying As-Is
Some Foreclosures have suffered from neglect in the hands of their former owners. Either way, Foreclosure homes may require significant renovations to make them habitable.
These properties are also sold without warranty, meaning that investors forego the rights to seek compensation from the lender for hidden defects and other issues as it is very rarely possible to get a professional evaluation prior to purchase.
Highly Competitive Market
A Foreclosure sale is almost always an auction, meaning offers for the property are made, and the best offer is accepted. The auctioneer will accept the highest bid that ’is at or above the reserve price set by the banklender. Seeing as Foreclosure properties come at a deal, there are usually many investors hoping to secure the property.
Financing Not Typically Available
Unlike most real estate transactions, where the buyer secures financing from a bank in the form of a mortgage, a Foreclosure sale does not typically accept financing. The auction participant is usually required to pay in full with cash. It may be difficult for bidders to find hard money lenders, and the money loaned oftentimes comes at a high interest rate, which makes it a less attractive offer than a typical mortgage
Hidden Costs
Auction properties may have delinquencies such as back taxes and liens attached to them. The liens may be imposed by the Internal Revenue Service (IRS), the state, or other creditors. Whatever is owed must be paid before the house can be closed on. This applies mainly to Foreclosure properties being auctioned off. Banks pay off any liens attached to an REO property before reselling it.
Auction.com
Now that you know more about the process of buying a Foreclosure home, it should be clear that while buying distressed properties may not be as straight-forward and simple as your typical real-estate investment, it is rewarding. Auction.com can guide you through the Foreclosure search process with helpful tools, education, and support. Start the search for your next investment home today.
