Foreclosures: Wise Investment or Money Trap?

Foreclosures: Wise Investment or Money Trap?

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I was having a discussion with a friend last week when our conversation turned to the housing market. Bleak news upon bleak news for some people, but not for my friend.

home foreclosureInstead, he has been eagerly scouring the area for foreclosed homes and is of the mind to buy one or two at deeply discounted prices, fix them up, and selling each at a substantial profit. Though the local housing market isn’t as strong as it was just a year ago, people are in the market for a nicely kept ranch or colonial that costs less than $250,000, a price that is common in our area of the country.

On the surface, such an idea seems interesting especially since my friend knows how to fix just about anything and has an eye that can assess what it will take to get a home market ready. What our conversation also revealed was some inexperience in locating foreclosed homes and the best process to snag one at a price that was sensible.

Though I am no expert in the buying and selling of foreclosed homes, I have found some resources and tips to streamline the process, information I have forwarded to my friend and am willing to share with you as well:

Search Online — Several websites provide information about real estate owned (REO) properties, bank-owned foreclosures available where you live. Redfin.com, RealtyTrac.com and Foreclosures.com each feature listings of homes banks would rather not own. As the saying goes, “banks are in the habit of managing money, not property.” Therefore, if you do your research right you could offer the bank substantially less than the home’s market value especially when calculating the cost for repairs.

Repairs, Maintenance — My friend has an excellent grasp of what costs are associated with making repairs and has a good eye to inspect and find problems. Not every person in the market for a foreclosed home has that talent, necessitating that a home inspector be retained to help find these problems for them. In addition, a contractor will probably be needed to help oversee this type of project.

Use a Broker — Unless you have the skills to bid for a foreclosed home at an auction, you would be better dealing with a broker when searching for a foreclosed home. Some banks will only deal with professionals in the first place, while a broker can give you access where none would be available otherwise.

I do not know whether my friend will go ahead and snap up a foreclosure or two, but I have no doubt that he is now better equipped to handle this type of transaction if and when the opportunity arises.

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