Midway Real Estate

During the latest economic environment, property investors have greatly benefited from buying foreclosures. Experienced investors have navigated the pitfalls of buying foreclosure property, but an inexperienced investor can be exposed to a number of risks. These buyers need to educate themselves beforehand in order to avoid these common mistakes.

Mistake #1 – Bad Location: Don’t overlook the location of the property in favor of a discounted price. Location is of paramount importance when investing in property for the long term. It’s never a good idea to buy the best house in a bad neighborhood. Not only will the property value deteriorate with the neighborhood but also it may be difficult to generate future cash flow through renting or selling the property in the future. A good rule of thumb is to buy a lower priced home in a good neighborhood to ensure the highest rentability and resale values in the future.

Mistake #2 – Purchase Price: The price for foreclosure property may appear to be lower than comparable properties these properties may require substantial repairs. Houses that are only a few years old can deteriorate quickly when they are not maintained. Therefore, a realistic budget estimate for repairs or upgrades and a contingency fund for the unexpected must be put into place.

Mistake #3 – Claims Against the Title: Conducting a title search can expose any unpaid financial claims against the property. In addition to the mortgage there may be liens registered for unpaid taxes or water bills. In order to obtain clear title you must ensure that all unpaid liens are paid prior to taking title to the property.

Mistake #4 – Inspection Report: Most foreclosure properties are often advertised “as is” with a tight timescale. As a result some buyers waive the building inspection. A prudent buyer is never advised to do because owners may neglect such homes once they stopped making their mortgage payments. Inspection reports can reveal damaged roofs, rotting foundations, malfunctioning plumbing, non-operating heating systems, mold and radon contamination, and termite infestation. Without having an experienced home inspector examine these components, a buyer could inherit a large and costly repair invoice.

A new investor in foreclosure properties must learn how to research neighborhoods, effectively calculate the true cost of ownership, assess claims possible against the property, and get an inspection to verify structural integrity of the property.

You can go to foreclosure investing to get a step-by-step guide that walks you through the process of evaluating and purchasing foreclosures. Also included are strategies to reduce the risk of the common mistakes new foreclosure buyers make.

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