by buying a foreclosed home, but you need to understand the process and determine whether the potential rewards are worth the inherent risks.
“Free real estate!” “Save thousands on your next home!” “Make millions with no money down!!” Those ads and late-night commercials make it sound easy, don’t they? The truth is, sometimes you can save money by buying a foreclosed home, but you need understand the process and determine whether the potential rewards are worth the inherent risks.
Simply put, foreclosure is the process by which a bank or other lender repossesses a home when the owner fails to make payments on their loan. And since banks make their money lending money, not managing property, they’re often eager to unload their repossessed properties. The market did see a flood of foreclosed properties after the 2008 recession, but that did not diminish the need for potential buyers to be versed in the intricacies of buying one of these properties and the particular legal and financial constraints associated with them. Before you even consider buying a home in foreclosure, be sure to:
Finally, be aware that those late-night ads and inside guides have enticed a lot of people into pursuing foreclosure homes. Increased competition means more pressure (and yet even more stress) as well as fewer bargains. Like instant wrinkle removers and machines that promise four-minute, six-pack abs, the reality rarely lives up to the promise.
Still looking for something priced lower than the average home in a certain area? If you’re handy, have the time, and want to avoid the hassles of foreclosure sales, perhaps a fixer-upper is more your style. Neglected and in need of work, they’re the kind of houses where a little “sweat equity” can create a wonderful home and a substantial return on your investment.
How can you tell if a fixer-upper is worth fixing up? There’s no hard and fast formula, but there are several factors that can help you decide:
That last one may be the most important of all. Let’s face it, repairs and renovations always take longer, cost more, and involve more stress than expected. That may also be why it feels so wonderful when they’re done.
A good fixer-upper offers a prime example of one of the main tenets of buying real estate: Whenever possible, buy the worst house in the best neighborhood you can afford. The reason is the principle of progression, a fancy way of saying that nicer, more expensive homes have a positive effect on the perceived value of their smaller, less expensive neighbors. Why? Because most people want to live in nice neighborhoods and will pay a premium to do so, even if it means getting less home than they might somewhere else. So, even if that long-neglected cottage has a bit more “character” than you’d really like, it may pay off in the long run.
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