Foreclosure or Not?

If you are among the people in the United States with some extra money and an eye towards a good investment, the thought of purchasing a foreclosed property may have crossed your mind. There are several points at which a buyer may purchase a foreclosed property. We've looked at pre-foreclosure and REO properties already on this site, what about buying homes in the actual foreclosure state, at an auction?

Well first off, 100% of investors and real estate experts seem to agree that purchasing a foreclosed home at an auction is the riskiest investment of all. Yes, you do stand to buy a home at a vastly reduced price, which means there is the potential to make a good profit. But, the problems associated with this kind of purchase can outweigh the benefits for many investors. Here are a few.

Sight Unseen. Most banks, after foreclosing on a property, put the house on the block and expect the bids to come in without the bidders having inspected it. Savvy investors who look at various foreclosure sites and auctions beforehand can get a look at the house cosmetically, but that won't guarantee a sound structure, systems, and so on. 90% of homes in the foreclosed state have some kind of damage, so repairs can quickly eat away at any savings you realized at the auction. Cash in Hand. Moreover, real estate auctions mean no financing for the purchase. You have to pay for the property with cash, and right away. Not a lot of investors have that kind of money at their disposal (which of course is the reason for mortgages in the first place!). Liens. Again, careful research may uncover this potential problem with a property at auction, but then again it may not. When you buy the property at auction, you automatically become responsible for any liens and property taxes owed on it. Again, these can be substantial. Redemption! Last, but not least, is the possibility that the property will be reclaimed through right of redemption. Laws on this vary from state to state, regardless it can be awful to close the deal, start repairs, only to find out within a month that the former owner has the right to gain the title back (or worse, that the IRS now owns it).

For all of these reasons, everyone agrees that buying homes at foreclosure auctions is best left up to the fully seasoned real estate investor with plenty of disposable capital.