All About Foreclosures
Should I Consider Buying a Home After Foreclosure?
Foreclosures for sale are always available, regardless of the state of the economy. Buying a foreclosure may or may not be a wise action plan. Here are some things to consider before taking the leap into foreclosure home acquisition.
- Should you buy at a foreclosure or wait until after the bank or mortgage company has completed the process? Typically you will pay a bit less if you make your purchase at the foreclosure. However, you are truly buying the property "as is" with few, if any, guarantees. Making an offer after a home becomes an REO (real estate owned) of the lender may cost you a little more, but the owner/lender has probably spent some money in repairing some deficiencies and/or giving the home a little TLC to make it more saleable.
- Is the property truly a bargain? Many people mistakenly believe that all foreclosures equal a bargain purchase. Just think about this belief for a moment. First, most foreclosures take place on property where little equity exists. For example, people owning a home worth $200,000, but having only a $75,000 first mortgage will typically never allow the property to be subject to foreclosure. They may be throwing away $125,000 in equity. Contrast that example with another $200,000 home with a first mortgage balance of $196,000. If you could not afford that home, you are much more likely to let it go to foreclosure since you are losing little money. You, as the buyer, would have to pay close to the FMV (fair market value) of $200,000, even if it were a foreclosed property.
- Are there expensive repairs that must be completed before you could resell or live in the property? The nature of mortgage loans makes it much easier to purchase a home in perfect condition for a higher price than to request "rehab" or repair dollars to be added to your loan. Often, you'll be required to fund major repairs out of your own pocket.
You should find MLS (multiple listing service) listings of similar homes for sale in the same neighborhood as your preferred foreclosure home to compare asking prices. Is the price of the foreclosure substantially less than current prices for similar homes? If the prices are similar, you are probably wiser to buy a home from an owner or qualified real estate professional. Shoud the price for the REO be substantially less than typical FMV for the neighborhood, you might have a true bargain.
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What Should I Know About Selling Foreclosure Homes?
Here are some questions to ask yourself before you become an active seller of foreclosures. Much depends on "where you are" in your personal and professional life cycle. In all cases, consider these items.
- How do you plan on acquiring
your foreclosure "inventory"? Do you want to buy
homes directly at the foreclosure? Do you prefer to wait until the
lender becomes the owner and offers its REOs (real estate owned) for
sale? Do you have the financial strength and desire to buy
delinquent mortgages and commence the foreclosure process yourself?
These are your primary options for becoming a part- or full-time
seller of foreclosures.
- Are you
talented in the home repair arena? If not, do you have the money
and/or sub-contractor "connections" to cost
effectively make repairs and bring foreclosures up to market
standards? You want to avoid spending all the projected
"profit" you hoped for by spending large dollars
to make necessary repairs or investing large sums in TLC to bring
your foreclosure homes up to market level properties.
- Do you have the time and talent to sell
foreclosure homes yourself or will you need experienced REALTORS to
advertise and sell your inventory? As many current and former
property owners are aware, selling a home can be a time consuming
and stressful process. However, using a real estate professional
generates a cost that you should factor into your selling price and
potential profit. Both selling strategies will accomplish your goal.
You do need to consider your decision carefully so you understand
the prospective results using both methods. Pick the best strategy
that fits your financial plan and professional lifestyle.
- Do you want quick turnover and profits or do you have a longer term strategy? You should decide whether you want to quickly "flip" one or more foreclosures or totally rehab properties and/or lease some homes to generate monthly income for a while and take advantage of capital gains tax rules by selling the property in the future.
You can generate good profits selling foreclosure properties, but, as with any financial plan, there are few guarantees. However, unlike buying stocks, bonds, or mutual funds, which can be done online or with a few phone calls, becoming a seller of one or more foreclosures takes more planning and hands on effort. Always find MLS listings in the area to get a good "feel" for current retail pricing. This strategy can be very lucrative, but be sure you understand the requirements and actions plans that work best for you.
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