Pluses and Minuses to Home Foreclosure Investing

Are you a new investor? If so, you have probably taken the first steps to being a profitable investor. Now you are ready to take the final steps to finding property and investing. Bank owned foreclosure property should be on the top of your list. This specific property is owned by the bank and is sometime referred to as REOs (Real Estate Owned). There are a lot of advantages to investing in bank owned foreclosure properties, and it seems that every investor wants to get a piece of this market. Consider investing in a property listing. This list will contain information regarding properties that a bank owned, the asking price of the homes and other valuable information.

According to Investopedia, repossession of a home, is defined as ‘a situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract’. With our economy going the way it is, this is becoming a reality for more and more people. For a homeowner, this is a pretty scary word. But sometimes it can actually be a blessing in disguise.

There are advantages and disadvantages to buying foreclosure bank owned property.

The most obvious advantage is the asking price by the bank for the home. The home will be marked substantially lower than market value. The bank will think about removing some or all liens and fees on the bank foreclosure real estate in order to get it on the real estate market and resell it to the public. This does not necessarily mean the home is in bad state or not worth investing in. It is marked down because the bank wants to get rid of the property as quickly as possible through a quick sale. The original owner’s unsuccessful attempt at a sell will not stop the bank from trying to make an effort to get the bank foreclosure real estate sold. The bank asking price for the property will be significantly below market value in order for this to happen. This is a great opportunity for an investment and hopefully the investor can resale the property and make double that amount in return.

However, there can be a substantial downfall to purchasing bank owned foreclosure property.

Most individuals do not invest in anything without checking the item. If you went to a store to buy new clothes, even if the clothing is on the clearance rack, you would check for flaws. Well, foreclosure bank owned property is typically sold as is. Generally home owners whose houses are going to be foreclosed most often are going through financial crisis so it is better to give them the hopes of acquiring money the fast way. One way will be to run advertisements like “houses bought for cash” etc. They may have spent thousands of dollars into making the home large by adding rooms or an extra bathroom and due to unseen situations have now lost their home. If you do not have the opportunity to inspect the property first any errors to the home will become your costly expense. This is truly one big disadvantage. Some will go as far as smashing up the home or taking everything they have put into it out. New sinks, ovens, ceiling fans, toilets and more. Its theirs and they want it. This leaves the home with substantial damages, costly damages.

Some states require the bank to present all buyers a disclosure with a summarize discovery of property damage. Such as, damage to the roof, plumbing issues or electric problems. This disclosure is valuable to investors and home buyers alike. Talk about this option with the bank that you are working with. If they are not lawfully required to offer you with a disclosure ask if you are allowed to have the home examined and how much time you have to do so. Some bank owned properties are not available for inspections or your viewing. If this is the case it may be wise to just drive around the neighborhood of where the property is located. Talk to neighbors and get an idea about the people who once lived there. You never know, someone may have seen the property before repossession.

However, investing comes with its advantages and disadvantages. This is a gamble most investors are willing to take.

Back to San Diego downtown real estate article index