In some instances, buying a foreclosed home from a bank makes good business sense, but in others, it can be a financial nightmare. Many first time buyers, and some seasoned investors, get caught up in the hype about making lots of money in the foreclosure market and then find themselves in the depths of a money pit.
The truth is, certain foreclosed homes can be great in terms of dollars and cents, but you have to be very careful regarding any foreclosure property that you decide to buy, especially if the property is in need of major repair.
Remember, most banks and mortgage companies have a need to recoup as much of their money as possible due to the heavy losses that they have already suffered. In many cases, the bank will not do repairs and they may not drop the price of the home to make up for the costs of rehabilitating the property, thereby leaving repairs up to the buyer.
Some foreclosure properties are not good deals for a buyers, either in sales price or in rehabilitation costs. In many cases, even if the home is at a lower price, the cost of repairs don't make it a good investment.
Banks may do some repairs but may not be willing to do others. If you buy the home, it is imperative that you do not underestimate the costs to do a total rehabilitation on it.
Rehabilitation can be costly. You should have a professional inspection completed by a licensed contractor before making an offer on any foreclosured home. There may be hidden damage and needed repairs that only a professional contractor can detect. .
Many novice investors figure that they can buy a foreclosed home and live in it while they do the work. They don't take into consideration the amount of work that is needed, the overall costs, and the time it will take to do everything, especially if they have to rely on money that comes from their employment paychecks.
Before many foreclosed homes are put on the market, they sit empty for months, giving vandals, thieves, drug addicts, and homeless individuals the opportunity to vandalize the home and steal appliances, fixtures, carpet, and even the copper piping.
Plumbing, heating, and electrical systems should be thoroughly inspected, along with roofs, swimming pool equipment, fireplaces, and the foundation.
This is not to imply that all foreclosed homes will be in need of major rehab, but many do. Most foreclosed homes are bought by first time buyers, and after paying all the costs to make the purchase, they won't have a lot of money left over for repairs.
This is why it is imperative that they look at foreclosured homes with open eyes. There are great opportunities out there for home buyers, but there are also pitfalls.
When you make the decision to buy a home, regardless of whether it is your first, or one of many, you will want to take steps to ensure that your experience is a positive and pleasant one.