Is That Foreclosure Bargain a Disaster in Disguise?

For many years, foreclosure bargains have been a popular attraction for investors learning how to make money in real estate. And as economic challenges have resulted in record numbers of foreclosures throughout the country, this opportunity in real estate investing seems more available than ever. However, foreclosure bargains have always included a few risk factors. New legal actions may add even more risks for the real estate investor. So before you jump on the foreclosure bandwagon, look for all the facts.
Foreclosure seldom happens overnight. A foreclosure occurs only after months or even years of late or missing payments. If a homeowner can’t afford to make the payment, other bills may be unpaid (leading to liens against the property) and it’s a pretty sure assumption that maintenance has been deferred as well. For example, a few electric heaters are cheaper than a new furnace. A few strategically placed buckets are cheaper than a roof repair. And why pay for an expensive plumbing repair if you can just use the other bathroom? Especially when dealing directly with a bank, foreclosure properties are usually sold “as-is.”
Of course, deferred maintenance has always been a risk for foreclosure investors. But increasing numbers of foreclosures abandoned to vandals and decay has led some communities to pass laws requiring anyone purchasing a foreclosure to spend fixed sums on improvements Financial Analysis Example as well. They may require improvements to be done by licensed contractors. There will be required inspections. There may be administrative hearings. The fixed sum is often based upon time the unit sat empty instead of actual needs for repairs.
Existing foreclosure laws provide for a time period in which the owner can redeem the property. While most owners are unable to take advantage of this opportunity, it’s important to be aware of the possibility.
There are numerous legal actions all over the country where bank foreclosure proceedings are being questioned. This may constitute a legal “grey area” in the future. If a court rules the foreclosure was illegal, can the original owner make a claim on the property?
Another problem with multiple foreclosures in the same neighborhood is the impact on property values and the resale value of your investment. If the foreclosure Wells Fargo Financial Health Coach next door is available for $60,000,and the short sale down the street is available for $75,000, will a buyer pay you $100,000 for the same floor plan?
Real estate investing has been a popular route to financial success. Two of the key factors in learning how to make money in real estate are “buy low” and “sell high.” Foreclosures are traditional opportunities to “buy low.” But it is critical to be able to recognize when that foreclosure may have limited potential to “sell high.”
It’s always important for the real estate investor to perform due diligence. It may even more important to look closely at foreclosure bargains in light of new and more complex legal trends affecting your bottom line.

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