4 Mistakes to Avoid When Buying a Foreclosure
Foreclosures continue to flood real estate markets across the country, and buyers are looking to cash in on what they view as some of the best real estate deals. But experts say that while some foreclosures are a great purchase, buyers need to be cautious before jumping in to make sure they really are getting a bargain.
Dan Steward, president of Pillar to Post Professional Home Inspections, advises buyers considering a foreclosure to avoid the following:
1. Don’t judge a house by looks alone. A $2 million mansion may look fabulous but have mold hiding beneath the walls or need numerous, costly repairs. A fixer upper, on the other hand, may look rundown but have excellent bones and can be repaired at a reasonable cost. A home inspection prior to purchasing a property can help buyers determine if they might be getting in over their head, Steward says. He cautions buyers to not just rely on previous inspections, however, since vacant homes can deteriorate rapidly.
2. Don’t focus on price alone. Buyers may focus on the ultra-low price so much that they forget to factor in other qualities, such as the home’s school district, view, location, and crime rate. Steward cautions buyers to not assume that financial problems of the previous owner are the main reason for every foreclosure.
3. Don’t be tempted to “flip.” Purchasing a home at bargain price, updating it, and then trying to sell it for a lot more may seem tempting, but Steward warns buyers to be cautious. Unless the buyers are pros at house flipping, they’ll likely run into several novice mistakes in trying to make fast money on flipping a foreclosure. Steward recommends buyers consult a real estate professional, home inspector, and contractors before considering a flip.
4. Don’t go over budget. Foreclosures often require some fixes so buyers need to make sure they have the money to afford needed repairs. Steward recommends that buyers have at least half of the money in cash for needed repairs. He says that buyers will want to avoid taking more loans than needed, particularly private loans, because the interest on them will slowly chip away at their initial foreclosure bargain.
Source: “What to Watch Out for When Buying a Foreclosure: Help Your Clients Know Which to Buy … and Which to Walk By,” RISMedia (April 7, 2011)