Can you make a profit by investing in foreclosed properties? Absolutely! Can you lose money by investing in foreclosed properties? Absolutely!
It is no secret that foreclosures are at an all-time high. Investing in a foreclosed property does not guarantee an automatic profit. There are experts who have been buying distressed properties in good and bad times, and you will be competing with them. Inexperienced buyers can get caught up in the excitement of the auction and overpay for a property.
As we explained in a previous article, when bidding on a foreclosed property, you must have "cash in hand." If you are the successful bidder, $10,000 is required the day of the auction and the total balance is due by 5 p.m. on the next business day. There are no provisions to finance the winning bid.
Prior to bidding, a potential buyer should investigate the market and property. While you can do a "drive by" inspection of the property, you will not be able to do a on-site inspection or have access to the interior. Don't forget to do a federal tax lien search. The IRS could show up at a later date, and they could take the property from you. (You would be reimbursed for the amount you paid for the property, but your money could be tied up for a period of time.) The property you are buying is in "as-is" condition. A large percentage of today's foreclosures are properties that are "upside down." In other words, in today's market, more is owed on the property than the property is worth. A great percentage of these properties are going back to the lenders and being sold as bank-owned properties.
What happens if you are the successful bidder?
You get a deed and now own the property. When you go to your new property, you may find the previous owner or tenant is still occupying the property. You now have to hire an attorney to evict them from the premises and this process could take months. Another scenario that actually happened in the Rim Country is you end up with a property where the interior has been virtually destroyed. Walls with holes, appliances gone, windows broken, toilets, vanities and cabinets destroyed. The inside of the home needed a total remodel at the cost of tens of thousands of dollars. The best case scenario is you end up with a home in satisfactory condition that was purchased below market value.
The bottom line: Foreclosures are a specialty field that should be left to those who have the knowledge to take the level of risk that is inherent to this type of transaction.
Ray Pugel is the designated broker for Coldwell Banker Bishop Realty. For more information, call (928) 474-2216.