Everyone has seen a sign at some point in their life on a foreclosed home. While it may be a sad situation for the previous owner, you can’t help but think about the possible benefit to yourself of buying this home and selling or renting it. The question is: “is it worth it?”
Foreclosures come in all shapes and sizes. You can find pristine homes with huge ceilings and vast acreage, and you can find homes the size of a broom closet that are in total disrepair. The fact is, buying a foreclosure is more often than not going to require some work on your end to get the property in an inhabitable state.
Still interested? Great! We’ve compiled some pros and cons to help you with your decision.
You stand to earn money from your purchase if you plan on selling or renting the property. You may need to put some repairs into it to get it attractive to buyers or renters, but a big payout from flipping or a steady monthly rental income both come with a huge bonus: more money!
However you go about it, foreclosures are an excellent way to get a home under the market value and use that to make you a lot more money. Just be sure to do your research, everyone is still trying to make money, and you can easily overpay if you aren’t careful.
Con: Repair Costs
The huge benefit of buying a foreclosed home will be totally lost if the repairs needed amount to thousands or hundreds of thousands of dollars. This is why you always need to get the property inspected before you buy.
Homes that look great can have serious foundation problems, or the owner could have been doing patchwork for years on the roofing. Whatever the case, the property may look fully functioning, but without getting an inspection, you may stand to lose money.
Be careful, get inspections and realize that a home that needs multiple repairs might just turn out to be a money pit if you don’t have the funds necessary for to get the property functional.
Pro: Upgrading From Your Old Home
Finding a foreclosure in a better area of town, a better town, or just a better home on your block at a low price is a tremendous opportunity. This will allow you to upgrade your lifestyle immediately, and who doesn’t want that?
The added bonus to this scenario is, if you already have a home, you can spend a minimal amount of time fixing it up and sell it for above your purchasing price. Then you can use this money in a number of ways like creating a nest egg, buying and selling more properties, or just pay down your new mortgage (as long as there is no penalty for doing so, in other words, get this kind of mortgage.)
The benefits of this situation aren’t just financial; they can be felt by your entire family when you move to a better town. You will likely move to a cleaner city, it will probably have better schools, and it might just have better services provided by the city.
For example, many more well off towns hold events for its inhabitants like the Christmas event in Manhattan Beach. Also, better cities hold more opportunities because the people around within them are usually more successful.
Upgrading your home may just set you up to change your career and improve your entire family’s life.
Con: Speaking of That Mortgage
Most lenders aren’t fans of offering standard loans on foreclosed properties. This is due to the value and the condition of the house.
The value may be extremely low because of the condition it is in. This is a double strike against you getting a mortgage.
Most mortgages need a home to be of a particular value to qualify, and they also have to be in above a certain level of condition to be eligible.
This is fine for the non-fixer-upper properties, but those needing extensive work will require an extensive search for a mortgage lender. Unfortunately, the laws require that foreclosed properties be sold as is, so there isn’t a chance to improve the quality of the home for them to sell it to you in order for you to find a mortgage lender with less stress.
Don’t let that stop you though! Foreclosures are still a great opportunity.
If you’re looking to purchase foreclosures and need help, please contact us by calling us at 949-350-0146 or emailing us at Debrakovacs@cox.net and let’s talk about your options today!
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