Once we begin thinking about which kind of property we wish to buy, many options come to our minds. There are a lot of factors that we must have in account before making such an important decision, and that is the moment when we start investigating different choices untill we find something we have heard of or read about: foreclosed properties. But what does that really mean? Is it going to be a good deal to buy a foreclosed property? Let’s think about it.
When we talk about foreclosed properties, we refer to townhouses, condominiums or apartments that have been repossessed by a bank because their owners were unable to make their mortgage loans payments. It is common knowledge that these type of properties are sold way below their original value, which is why a lot of people are always on the lookout for those that are on auction. But we must know if it is worth or not to invest in it. There is an evaluation that must be done to know what issues you should expect once you’ve decided to participate in that operation.
To help you with your decision, here are the pros and the cons of getting a foreclosed property.
PROS
1. Cheapest Price Available: Because of their depreciated value (according to the principles of accounting), banks and other financial institutions would prefer to sell foreclosed properties as quick as possible. Foreclosed properties are considered as non-performing assets, thus the longer the banks keep them, the more money they lose because of holding costs. For example, the one who maintains the condition of the house is the bank itself, since nobody owns the property as of the moment. That is why the price is usually at a great bargain in order to attract more buyers.
2. Repayments are incredibly Cheap: Once you’ve paid for the foreclosed property at a bargain price, payment terms can actually reach up to 15 years and with low monthly payments compared to properties that are newly-built. If you’re planning on buying a condo or an apartment for the purpose of renting it out, then getting a foreclosed condo or apartment is a very good investment.
3. Your Investment is Guaranteed: As we’ve explained above, getting a foreclosed property is a good business investment. You pay for the unit at a very cheap price, you fix everything that needs to be fixed, and then you rent the unit as if it was brand new. Not bad for getting your investment back, right?
CONS
1. Tight Competition: Because buying foreclosed properties is incredibly cheap, you can start expecting a lot of competitors for the property. And we’re not just talking about one or two competitors; you’ll be faced with groups of interested participants, especially if the property that is being sold or auctioned is determined valuable.
2. Discounts are not Always Guaranteed: Sure, there are foreclosed properties that are sold off at huge discounts, but this does not always apply towards every foreclosed property. There are some apartments or condos that are offered by its previous owner at higher prices in the hopes that the amount can help them pay off the mortgage or taxes. Of course, the bank that handles the foreclosed property are also looking to getting back the losses they incurred while managing the house, so there might be a small discount or, worse, none at all!
3. Auction Equals Straight Payment: In case you’re not familiar with how an auction for foreclosed properties work, then we’ll let you in on the facts. Should you win during an auction for the foreclosed property, you are expected to automatically pay for the property upfront. That means you won’t be able to do some house inspection first before paying for the property, which might leave you in a disadvantaged position.
So now that you’ve realized how buying foreclosed properties can become a good investment or not, what’s the next thing you need to do? Well, you need to keep a sharp eye out when looking for foreclosed apartments and/or condos, of course! Sure, there are a lot of foreclosed properties for sale out there, but you also have to realize that not all of these properties are suitable to invest in.
Therefore, when searching for foreclosed properties, always remember the following:
- Never forget to inspect the property: When checking out any foreclosed property, always keep an eye out for damages to the property. Check on infestation, knock on the walls, and check the water pumps and the sewage just to make sure. Should you find any problems, the previous owner is liable to have the problem fixed first before you start talking about buying the property.
- Location is Key: No matter how cheap the foreclosed property is, no one will bother checking it out if the location is not prime. If you’re aiming to buy a foreclosed apartment or building for renting it out, then the property should be in a location where it has good access for schools, markets, and public vehicles.
- Know your Fees and Taxes: When you’ve decided to buy the foreclosed property, it’s always an advantage to learn about the fees and taxes that you need to pay for the property. When in doubt, you can talk to a real estate expert regarding this.
Remember that even if they are sold at a bargain price, a lucky person can still buy a beautiful apartment or condo because it is sold at the cheapest price possible. If you’re interested in getting one, feel free to check out our Listings page!
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