Is investing in real estate foreclosures a good idea?

Turn on your TV and you’ll soon find someone talking about real estate foreclosures and how good of a deal they are. Look in your local newspaper and you’ll find ads that tell you that they’ve got good deals in real estate foreclosures. If you talk to your neighbor, they just told you that it is a good time to buy real estate foreclosures. Listen closely and you might not get burned and lose your life savings.

Unless you know what you’re doing, don’t buy real estate foreclosures? Let me explain why. The owner has just tried to sell their home for two years. There are issues and problems everywhere. The home is prices too high. The owner owes too much. The floor plan is strange. The owner has not made any improvements to the home. There is an unrecorded easement that will not allow legal access to the garage. And the list goes on and on.

The reason why it is a foreclosure is because there is something wrong with the home, the owners, or the property or all of the above. Be careful. In some cases, you may be able to find a good deal, but in most cases, it will be a bad deal.

First, when the owner moves out of the home, the bank hires a real estate appraiser to value the home “as is,”, “as repaired,” “ for a typical marketing time” and “for a fast marketing time.” You see, the bank has four difference values of the property.

Next they may or may not clean up any debris around the home. In most cases, this is the maximum that a bank will do. Next the realtor will list the home as a foreclosure. Do you think that the home is priced way below market value? In most cases, the bank will try to recoup its loses and sell the home for what they can get. This is of course “market value.” So now do you think you’re getting a good deal? Me neither.

So the moral of the story is don’t invest in foreclosures unless you know what your doing because your realtor will want the highest commission that they can get, your bank will want the most money they can get to recoup their loses and the bank understands what the home is worth.