Is It a Good Idea to Buy in a Foreclosed Neighborhood?

If you are considering real estate investments, one option is always foreclosed homes. REO homes are real estate owned homes that have been foreclosed upon and are often significantly cheaper. Here are some reasons you may (or may not) want to buy in areas with high level s of foreclosed homes.

Benefits

Affordability – when banks own these homes, they don’t want to hold on to them for as short as possible.  Every month they own it, is another month spent paying taxes, upkeep, and whatever else the home might need. They usually will offer these homes at greater discounts in order to get rid of it, often meaning smaller mortgage payments.

If the neighborhood is filled with REO’s, then the surrounding houses will be sold cheaper, even if they aren’t REO’s.

Options – REO’s come at a variety of prices, and sizes. You will be able to find almost anything in your price range when shopping through REO’s.

Value appreciation  Buying a foreclosed home that needs some work will surely benefit from the repairs and upgrades you install. As long as the repairs hold up, you can sell the home for considerably more than you bought it for.

Even buying a non-foreclosed home in a high foreclosure area has benefits. You might have to wait a while for other buyers to buy those homes in order to see price appreciation.

Giving back – it’s no secret foreclosures hurt the overall neighborhoods value, so when you put the work in your foreclosure with the aims to improve it, you are helping out the community. You are a key part in leading the recovery. If your neighbors appreciate what you’re doing, don’t be surprised if they come offering help.

Drawbacks

Competition – Because they are priced so low, everyone wants one. Be ready to be in the thick of a bidding war.

Costly repairs – most of these homes are sold as-is, meaning nothing has been done to them since the last owner moved out. Definitely count on them needing some major repairs. It’s common for old tenants to purposely vandalizing the home as they’re moving out, and vacant homes are prone to looting. Be ready to bring out the wallet.

Neighborhood instability – Neighborhoods with high rates of foreclosure often suffer from high crime rates, which can deter a lot of potential buyers.

Hidden costs – Upon buying the house you discover there’s a lien on the property, you could be forced to pay their debts. If the owners are still there, you could be forced to pay for their eviction proceedings.

Time and frustration – REO’s are always time consuming and frustrating in the sense that you will have to go through a lot of paperwork and red tape before it’s all said and done.

Slow to appreciate – While you make significant improvements to the home, that doesn’t always mean it will appreciate right away. Foreclosures weigh down on the overall market values in a neighborhood. So it takes time for a foreclosed home to appreciate, and especially in neighborhoods that have several foreclosures.  

Post a Comment