I get the question routinely. The exchange goes something like this:
"Can you help us find a foreclosure home?"
The answer is, "Yes. I can. Why do you want one?"
Most of the time I hear, "Well, we want to save money." Hoping to get a deal, or similar motivation.
Most often it is a young couple looking for a first home. And I have to tell them the grim truth about our Wake County foreclosure market.
"O.K. Do you have your mortgage lined up?" No point in shopping for a home if you haven't shopped for the money.
If not, they need to backtrack and take care of that.
If yes, then I ask, "And you have your down payment and $20,000-$30,000 additional for repairs?"
Usually that gets a surprised stammer, "Well, no...We don't. We figure we can work on it as we go."
"So can you pay rent while you work on the home?"
"Well, no we can't handle both."
That's when I often say, "It's may seem odd to hear this. See, foreclosures are for rich people."
And that gets the ball rolling.
"When a home goes into foreclosure, it is because the owner cannot pay the mortgage. Long before the bank takes the home back, most owners have ceased to spend money on maintenance. Worse yet, some homeowners get angry and damage the home purposely. Most every foreclosed home we will see is a mess. The majority are uninhabitable, torn up, moldy, or have other issues. You will be buying the home 'as is,' meaning the bank will not be doing any repairs. You will be replacing all floor coverings and appliances, painting the entire interior, buying an HVAC system, replacing anything that has been destroyed or stolen, and generally doing a lot of work just to make the home habitable to move into."
I usually have to prove the point and take the tour. I'll never forget the one couple where he was oblivious to stench, damage, and huge repair costs, and she was in tears. Or the time another fellow kept a stiff upper lip through three rough homes and the Mrs. locked herself in the car for 1 1/2 out of 3.
It is a sad thing to see young folks who are looking for deals in the wrong place, when they should be enjoying the home buying process and getting a solid habitable home for their investment. Such is the influence of silly television programs about flipping neglected houses. What I have to tell the client is that the folks doing well at rehabbing are most definitely not undercapitalized. If they don't make their target margin on one home, it won't crush them. On the other hand, if my client misses the ball on their one home, it will likely devastate them for a long time.
Kids, get your mortgage lined up. Set aside some working money for unforeseen issues. If you find a foreclosed home that works, fine. But the overwhelming odds are you will be buying a home the conventional way on the open market. I'll be glad to help you with either, and glad to educate you along the way.
"See, foreclosures are for rich people."
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