Pros And Cons Of Buying A Foreclosure

By Kurt Real Estate Nov 23, 2019

Buying a foreclosure can be the right move when you’ve planned your financing carefully and have the right real estate team in place. While such a real estate investment can be a great deal and offer you a tremendous return on investment, you’ll want to weigh the pros and cons before making a commitment.

The pros

It is likely the lender wants to get the property off their hands and, therefore, is willing to sell the property at a discount. This presents one of the primary reasons investors may turn to foreclosures – a good deal.

For those that seek to live in a desirable neighborhood a bit above their price range, this can be a great way in. Going for a foreclosure may allow a buyer to buy bigger – perhaps something that would have been above his/her means.

Since the price you pay is generally below market price, there may be substantial financial gains. As the property appreciates in value, a buyer can sell the home with a much higher profit margin.

The cons

One of the largest challenges with foreclosures are the repairs. Depending on how long the home has been in foreclosure, there may be a lot of work to be done. Since the previous owners did not have the means to pay the mortgage it should not come as a surprise if they didn’t have the means to keep up the property.

Homes that reach the REO (Real Estate Owned) phase of foreclosure are typically in the worst condition. Mold build-up, leaky pipes, and termite infestation are just a few of the common issues you could come across in a foreclosure. Since these homes are usually sold as-is, these repairs now become the buyer’s expenses.

Some foreclosures have financial burdens tied to them that, as the new owner, you may assume responsibility of. Thoroughly research what obligations may exist beyond just the mortgage payments.

Evictions are a long and painful process. The previous owners are disgruntled having just lost their home due to financial hardships. Be warned, they may take their frustrations out on you or the property. Take the necessary safety precautions in order to protect yourself.

There are no guarantees in foreclosures. Again, this is a tedious process and, while waiting for a response, a better offer could come in and seal the deal. If you’re going for a foreclosure, you’ll want to have all of your bases covered.

Despite these barriers and potential complications, foreclosures do attract a lot of competition. You may find yourself going against an investor ready and willing to pay all cash up front. This is a hard offer to compete with and, in most cases, unless you have a better offer to present, you’ll lose out to these cash deals.

Challenges aside, there are many advantages in buying a foreclosure. Don’t be put off by the cons, but do your research and go into the process prepared. Buying a foreclosure can be loaded with obstacles, but for those looking to afford something better or invest in something with a high ROI, it could be the best available option.