Buying foreclosures can be a great way to save money on a home, whether for your primary residence or a rental property. It is not always as straight forward or easy as buying a seller-owned home, though. There are some definite advantages and disadvantages to buying one of these discounted properties.
The Benefits
The main benefit of buying a foreclosed home is the price. The bank that has repossessed the house is usually very eager to unload it and is willing to accept low offers.
It is possible to purchase foreclosures off the auction block, but bidding wars can easily erase any real discounts. Buying from the bank is the easiest way to buy foreclosures. Sometimes the banks even hire real estate agents to handle the transactions like normal sales. Either way, the bank will typically be willing to concede some costs in the sale, like including the title insurance and waiving the appraisal fee. The bank may also do things like offer you a really low interest rate on a mortgage loan, reduce the down payment requirement, or do away with the closing costs.
And while it is true that many of these properties may be in less desirable areas of town, it is still possible to find some in more affluent regions, where they will better maintain their value.
The Drawbacks
Finding foreclosed properties can require a lot of work on the buyer’s part. If you cannot find them through a real estate agent, you may need to search through public records for homes going into default. After you find some potential properties, it is your responsibility to search the public records for any liens against the homes that you would be required to pay off. This makes the overall sale more expensive, sometimes negating the initial price markdown.
Beyond requiring more upfront effort, buying foreclosures can also mean more post-sale work as the properties have often fallen into disrepair. Replacing fixtures, repairing damages, and updating the landscaping can all cut into your discounted sale profits. And if you buy the home at auction you may never have had a chance to even go inside and inspect it beforehand, resulting in some potentially unpleasant surprises.
Still, if you are willing to take on the extra work and be patient, buying a foreclosed home can make for a very sound investment.