3/16/2012 3:59 PM ET|
Should you buy a foreclosure?
Pay for a thorough inspection before you buy. Foreclosures are sold "as is," which means the bank won't make repairs or improvements. Even if the house's previous occupant didn't trash the place in a fury, the home may have hidden defects that could cost tens of thousands of dollars to repair. A bad foundation, extensive water damage or bad siding or drywall could turn a seemingly good deal into a nightmare.
"Get a registered property inspector to do a full inspection," including a termite inspection, Barton advised, "and be willing to take a loss of $300 to $500 (the typical inspection cost) if the inspection turns up something major."
Anderson agrees. He also gets a promise from the seller to get any utilities turned on in time for the inspection, since in many foreclosures they have been shut off.
"It's pretty tough to do an inspection if the utilities aren't on," Anderson said. "You want to make sure everything is functioning so you can get a full inspection."
Get bids for repairs and improvements before you make an offer. Even if you'll be doing most of the fix-ups yourself, you may still need pros for certain jobs. Having ballpark figures for repairs will help you know when you're getting a good deal, or when you might be overpaying. You'll also want to budget for surprises. Lassus had to scour the country to find the discontinued tile the previous homeowner had used in a half-finished job.
Research the homeowners association. Lassus knew the homeowners association was financially sound, since she already owned a property there. She would have been far more wary if there were a lot of other foreclosures, houses for sale, empty houses and strapped homeowners. A dwindling number of dues-paying residents means the association may have to jack up the fees it charges the remaining homeowners to cover its costs.
"Some associations don't allow 'for sale' signs," so it can be hard to know on casual inspection how many homeowners are in trouble, Lassus said. Real-estate sites such as Zillow can help, as can talks with local real-estate agents.
Know the rental market. If you plan to become a landlord, you want to make sure the rent you can charge covers all of your expenses, including property taxes, insurance, repairs, maintenance, homeowners association fees and assessments, and mortgage payments. Zillow offers rent estimates for many properties, but check with local real-estate agents to make sure those are accurate.
Also, a rental market may be hot right now, but it could cool off, leading to higher vacancies and lower rents, as many renters become homebuyers, Lassus warned.
Barton said he has benefited from the fact that Lincoln is home to several colleges. A steady supply of renters means "we get extremely good rental rates," he said.
Be patient. Lassus' deal was done within weeks because she paid cash and because the lender was on the ball. Other buyers of foreclosures warn that the buying process can take months and be chaotic.
"I would say my absolute worst experience thus far is going through the closing process of foreclosed houses," Barton said. "If you are dealing with HUD or Fannie Mae, they seem unorganized, probably due to the fact that they have thousands of these they are processing."
Barton says he's learned it's essential to work directly with the seller's title insurance company if he wants the deal to close on time.
Have a fat emergency fund. Lassus recommends every investor have an emergency fund to cover at least six months' worth of property expenses -- and preferably 12 months' worth. Unexpected repairs and vacancies can play havoc with cash flow, so you want a fat cushion.
After all, the last thing you want is to lose the property and become yet another casualty in the foreclosure epidemic.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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Wish someone would buy the BoA foreclosure next to my house...
Weeds and grass are two feet tall, and cant get BoA to send anybody to mow the weeds...?
Tried calling them many times...
Next call will be to the Health Dept, for rodents, then maybe they will
cleanup their property..?
We looked for a house for about one and a half years. The RE agents always tried to push us toward the higher end. Finally after about five offers on short sales that fell through we saw an REO on the internet that was in an OK part of town. Only problem was that you could not preview the house. We made a lowball cash offer. After playing a little negotiation ping pong the bank said they would take our offer if we could close in two weeks. We got the house about $80,000 under market, built in pool, 3013 sq ft, 4 bd, 2.5 bath. The rational for the lowball was that we have seen a lot of torn up REOs. So we thought we would have to put a lot into it. As luck would have it, the former owner left it in good condition, just one crack in the cieling. I appealed to the builder who said the crack was not their fault, but fixed it anyway at no cost to us. We've put about $15,000 into paint, tile and carpet. We could probably make a quick $90,000 if we wanted to flip, but we'll wait two years and take the tax exemption.
In the past two years I have purchased 2 REO properties and a short sale. All three are rented with positive cash flow. Scheduled to pay off by the time I retire. Since no pension with my employer, this is my retirement nest egg. I couldn't be more pleased.
If it is a house you really want then forclusures are a great deal. However there is a downside, if the person that lived in that house before was was iresponsible and owed money to everyone, be prepared to deal with collection calls, strange people knocking on your door, and if for some reason they happend to have the same last name as you be prepared to have your financial information impacted by their bad choices.
I just wanna bacome a millionaire.
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