I was just browsing some recently sold foreclosures in GA on www.realtytrac.com and there are still some good investment opportunities out there. However, if you ever consider buying from whatever source, do be aware of the conditions that apply and try to avoid the common pitfalls associated with buying a foreclosure.
The common condition applied to most foreclosures is often flagged as follows:
“The owner is not making any warranties or representations concerning any of these properties including their availability.”
Any investor is looking to make a profit either by reselling the property “as is” or by fixing up the home to get to get the best market price or perhaps decides to take in renters, sometimes on a “rent to buy” program. Bargains happen when a bank seizes the home after the existing buyer defaults on payment. These homes are often in a state of disrepair and tardy due to the owners financial plight. Furthermore some of these homes get trashed before the owner is forced to quit or by intruders who break in and vandalized the place after the owner quits or even when the new owner or investor/fixer upper is in the process of renovation.
Real Estate Owned Home (REO) versus buying at an Auction
Unless you are already a savvy real estate investor, you may be advised to focus on REO’s and avoid short sales where the process of obtaining a loan tends to drag on and stay away from auctions. Also auction properties require 100% cash payment and you don’t get the chance to assess the real condition before buying. Whereas REO’s follow a similar process to traditional home sales, allowing home inspection and usual financing and even mortgages sometimes available. REO’s are often in a poor state of repair , reflected to the asking price, but can make good “fixer uppers”. Furthermore when owned by a bank the REO price is often negotiable as the bank is just recouping the most it can to offset their lenders losses.
So if you go for the REO then take the opportunity to have a qualified home inspector to go over the property before you commit to buy. Then work out your budget to fix up the place so that it’s “fit for purpose” and desirable. If the figures for fixing up and the asking price work for you then go for it. As mentioned you can usually use the repair costs as leverage with the bank selling the home.
Although a home inspector should spot these points, there are some things you can be aware of with older properties:
- Lead paint on outside windows, doors, pipes, and guttering in subject to stringent regulations if necessary to burn it off before repainting so consider this and get professional advice. Sometimes it’s cheaper to replace window frames in bad condition rather than patching up the woodwork and repainting, especially when already lead painted.
- Basement floors on property built before 1978 may contain asbestos
- Check the home for radon gas with a testing kit – see following link on how to go about this: http://www.epa.gov/radon/pubs/citguide.html
- A backyard pool must have enclosed gates at least six feet high and closing latches at least 54 inches off the ground.
If you are buying a home for yourself then consider safety needs of your family which are not the same for a family with young children as a family of adults.
One final bit of advice is don’t skimp on the price of the home inspection and if you try to beat down the price unreasonably things will probably get missed. The inspector must catch things like problems with furnaces, ductwork, and bathtubs. To inspect a 1500 square foot home and to check everything thoroughly the inspector needs at least 5 hours to do a proper professional job. So don’t expect to pay $150 for this pay a professional rate for the job but if they miss something serious you may then be able to sue them.