Real estate investors often view foreclosures as profitable investments. While this may be the case for savvy and experienced investors, it can often carry a number of risks for less experienced first-time buyers. As tempting as foreclosures seem, homebuyers should educate themselves ahead of time to avoid these five common mistakes.
Mistake #1 – The price tag
While the price you negotiate for a foreclosed home may be significantly less than its value just a few years ago, many of these homes often require substantial repairs. Even if a house is only a few years old, it can deteriorate quickly. So unless you plan to do these repairs yourself, be prepared to reserve an additional 10 percent of the purchase price for possible labor costs. It’s important to take these repair costs into account when negotiating, so you don’t end up foolishly overinvesting in a foreclosed property.
Mistake #2 – Waiving the home inspection
Foreclosed properties are often advertised “as is” with higher discounts being offered to buyers willing to forego a home inspection, something (for the reasons outlined in Mistake #1) that is never recommended. make a buyer Often these homes are abandoned by homeowners who stopped caring about their home once they stopped making their mortgage payments. Commonly performed inspections of many properties reveal damaged or leaking roofs, rotten foundations, faulty plumbing, electrical, mechanical, and heating systems, mold and radon contamination, and termite infestations. Without an experienced home inspector examining these components thoroughly, a buyer could inherit a much larger and more expensive repair job than expected.
Mistake #3 – Flip
Since the value of many foreclosed homes is expected to drop significantly in the near future, you should think of a foreclosure as a long-term investment, rather than a short-term investment. If you are just trying to cash in on a quick investment, a foreclosure is not for you. Only investors with the financial resources and patience for a long-term real estate investment and homeowners who can afford a fully amortized fixed-rate mortgage should consider purchasing a foreclosed property.
Mistake #4 – Rent
Inexperienced buyers often assume that the discounted prices offered at foreclosures will compensate for a location in a less desirable neighborhood. As with any other type of home purchase, your search should always focus on the worst homes in the best neighborhoods, to ensure the highest resale value in the future.
Mistake #5 Cloudy Title
If you find a property in foreclosure that you like, request a title search to be conducted immediately to ensure there are no liens on the property as a result of debts such as unpaid mortgages, home equity loans, or unpaid property taxes. . These rulings often include late fees and other penalties, and must be met before the property can be sold.