Buying a foreclosed home the best option?
Buying a foreclosed home, is it the best and wisest buyer choice?
What you must know about Foreclosed homes.
Foreclosed homes, they are everywhere. You a are a buyer seeking to find the best deal in the market while protecting your financial interests. Is Foreclosed homes the best option?
Depends. Bank owned (REO) homes usually come with a lot of issues. In the SF Bay Area every community has been hit. Some worse than others. Many home owners did not go out with a fight. Many had tenants who were evicted.
We have found sabotage of electrical systems, cement poured down the toilets, copper plumbing stripped, electrical wiring stripped, water heaters disconnected, furnaces disconnected and removed from the premises to name a few things.
Well you say I can always get inspections...
True. But bank owned properties are sold AS IS. You are allowed to obtain inspections and usually you are given 10 days. Inspections are not cheap. Buyer pays for the inspections. Say you have your roof, physical inspection, termite inspection, foundation inspection(if needed), sewer inspection (highly recommended on older homes)chimney and fireplace, where applicable. Here is approximately $2000 just in inspections fees. Say the home was priced for $250000. A home down the street, not in distress is priced at around $290000. The foreclosed home has approximately $30000 possibly more repair fees and upgrades . The non distressed home down the street is in move in condition with upgrades in place. Do you have the extra $30000-$40000 to spend? upfront?(This is just an estimate of repairs, most find after delving into the repairs the costs can go much higher.)
Would it make more sense to negotiate with the seller of the non distressed home to assist in contributing towards your closing costs and buy down your interest rate to get into a good solid home? Of course the non distressed home would still need to fall into the appraisal guidelines for the area.
What I have seen is a rush to purchase these foreclosed homes that may not make the best business sense down the road. You have to weigh in several factors.
Having said this , YES you can find some good deals on foreclosures but remember many had angry tenants and home owners who stripped the homes and/or did damage that may not be found on inspections that will show up after you received title of the home.
My advice to any buyer in this market....Do not get emotionally attached to any home...Take your time ...Do your homework...Make sure your Realtor has given you up to date comparisons for recently sold homes...Look at the overall value of the properties in the area and probably most important of all take into account how long you plan on keeping the property. The market eventually will bounce back. However I do not expect in the same fashion as before and it will take years for the equity to build back up. If you are in the mindset for a couple of years in hopes of making a profit by reselling, you might want to rethink that strategy.
History has proven for the most part you need to keep a home for a minimum of 5 years to break even and/or make a profit. It really depends on the timing of the real estate cycle when you purchased and when you intend to sell.
So, is a Foreclosure a Buyers best option? It depends....go in with your eyes wide open and have a CPA sit down with you to determine savings purchasing a Foreclosure vs a non distressed home.
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