Blog | Investing
When Is It Actually a Good Idea to Buy a Foreclosed Home?

by | Dec 24, 2020

Buying A foreclosed home can be a good idea especially when it comes to real estate investing. Bank-owned homes are quite numerous in today’s market and it’s painted like the best deal out there. At times you drive by a property, you admire it and then you see the ‘FORECLOSED” sign on it and you feel the universe has handed you a push. Here at Needtoskip, we are all about you making the best decision in real estate investment and we are here to demystify the convention that buying a foreclosed property is always a good idea (don’t worry, you’d thank us later!!).In simple terms, A foreclosed home is a home/property that has been put up for auction by a bank. This happens as a result of the homeowner defaulting in making mortgage payments to the bank. You can find foreclosed properties through any of the following means:

  • Pre-foreclosure: More popularly known as “short sale”. This is done by buying a home about to go into foreclosure from the owner. You might have the luck of buying the property for the remainder of the mortgage price or above it.
  • Real Estate Owned(REO) Property: When the bank fails to sell a foreclosed home at the auction, the property is now ‘real estate owned’ by the bank.
  • Auctions:  Then there are the actual foreclosure auctions that allow you buy properties in cash.

Why it is a good idea

The most common benefit that comes with buying a foreclosed home is that the property comes at a lower price than other houses in the area. Other benefits that comes with buying a foreclosed home are:

  • Opens up the opportunity for you to buy property in areas with better social benefits (such as school districts ) that you would have previously been unable to buy.
  • Minimal competition from traditional buyers due to an unwillingness to wait the extra time it takes to acquire a foreclosed home.
  • Another upside is that the cash requirement of foreclosure auctions might reduce the competition for the property.
  • There’s also the benefit of clean titles and paid back taxes and existing liens removed.

What to consider before buying a foreclosed home?

  • Buying as is: Purchasing a foreclosed home, especially at an auction doesn’t allow you to have a full appreciation of the defects or damages the property has. This is due to the fact that you’re not allowed to inspect a foreclosed property.
  • Unknown Repair costs: Since you can’t inspect the property, you might incur unfavorable repair costs in trying to make the property habitable/functional.
  • Squatters: You might have to deal with evicting squatters, drug addicts, pests and rodents on the property before you can occupy the property.
  • Delay in processing sales documents: banks are known for being tardy in processing foreclosure papers.
  • Seller report : Seller disclosure reports are not provided in foreclosures. Basically you might be buying a property ‘blindly’.

In general, buying foreclosed homes are a good investment consideration. It is always wise to look beyond the norm and to weigh the pros and cons of buying such a foreclosed property.

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