Should I Buy a Foreclosure? Seems Cheap!

foreclosure

Nail & Key co-founder, Brandt Barham, specializes in investment properties. Read his valuable insights below before you purchase a foreclosure…

“I often get questions from friends about whether or not they should purchase a foreclosure. However, there are several factors I encourage people to consider.

First of all, buying a foreclosure today is much different than 2009 or 2010. Back then, banks had hundreds of foreclosures that they had to get rid of. They were very motivated to unload their inventory.

Nowadays, most banks have less than 30% of the foreclosures they did 7 or 8 years ago. In fact, foreclosures are now at the lowest number they’ve been in 10 years. This is due to regulations tightening of lending practices and to the overall improvement in the economy. In short, banks are no longer motivated sellers.*

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Most people automatically assume foreclosures are cheap and people go after them for a quick flip, but fail to calculate the additional cost of the deferred maintenance. If you’re not paying the bank, you’re likely not maintaining your home properly. Deferred maintenance could easily add up to an additional $10,000 or more.

If you buy your foreclosure at the courthouse rather than on the MLS, not only do you have to pay cash, but you also assume any liabilities or outstandings liens on the property. The benefits to buying on the MLS is having a clear title, but you are now competing with all the eager buyers who just finished watching Flip or Flop on HGTV and will likely pay much more than the home is really worth.

These days, I typically advise against buying a foreclosure unless you’re a seasoned pro. Feel free to reach out to me with any questions you may have about buying a foreclosure or investment real estate in general. I’m happy to share!”

– Brandt

* Data and graph taken from Atom Data Solutions.