4 Things to Remember when Looking at Foreclosure Homes

Homes that have been foreclosed can be a smart investment for prepared buyers, as long as they do not expect a quick and easy shortcut to riches. Whether you are looking for a first home or an additional rental property, you can maximize the return on your investment if you know what to look for and what to avoid when buying foreclosed houses. There are four things to keep in mind.

Expect Realistic Discounts
Foreclosure success stories about a savvy investor picking up a multi-million-dollar home at a fraction of its original price are noteworthy precisely because they are not everyday occurrences. Auctions can end up hotly contested, and the final sale price could be very close to a home’s market value. Additionally, when dealing with Real Estate Owned (REO) foreclosures—properties that have been foreclosed and are owned by the lender—the bank’s willingness to make a deal depends on a number of variables and may not always end up at rock-bottom prices.

Look Beneath the Surface
It is always a good idea to have a home inspected before making an offer, whether the home has been foreclosed or not. Hidden problems can be a source of future headaches when buying foreclosure homes at auctions, since they may not allow buyers to walk through the property or have it inspected before purchase. If you don’t have the time or opportunity for a thorough inspection, be prepared to budget additional time and money for renovations or repair.

Remember to Clean House
Depending on the circumstances surrounding the foreclosure, a foreclosed home could be ready for new occupants immediately or in need of serious cleaning and repairs. For the most part, homes with extreme damage are easy to identify and avoid, but it is not unreasonable to expect that you will have to haul out some trash, replace a few light fixtures, and possibly re-paint. This can be a problem for people who did not plan on paying taxes, utilities, or other property costs while getting the house ready, but it is easily resolved if you plan for it ahead of time.

Be Aware of Additional Costs
Some foreclosed homes can be subject to liens or financial claims. These can be unpaid taxes at the local, state, or federal level; non-tax debts such as contractors awaiting payment; or bank loans taken out against the property. Smart buyers of foreclosed homes will at a minimum perform a title search on the property or consult with a professional to see whether they should prepare to incur additional expenses before they can take possession of the home.