Buying Foreclosures – Be Aware of Pitfalls

[Jeff Kaller]

There are great benefits to buying foreclosures. For one, you can make money re-selling a foreclosure, especially if you can do it through a short sale.

At the same time, there are some pitfalls that you should be aware of. Often, it is not possible to inspect the property before the auction, so you cannot know what the condition is – at least inside. Hopefully, the auction price will end up low enough so that you can make repairs or upgrades and still make a nice profit.

One situation to look carefully at is finding out who is living in the house. When the house is vacant, it is easier to deal with; however, if someone is living there you will have to figure out how to get them to move out. Sometimes the former owners are not in the home; however their friends and relatives can be staying there. Often, there is a renter who has been unaware of the fact that the house is in foreclosure.

These can be sticky situations. A good way to deal with getting the people to move can be to help them in some way. You might have to pay part of their moving costs or deposits on a new place to live. This may end up being part of the cost of doing business, and will result in a smoother move, rather than a battle.

If you choose not to assist whoever is in the house, you may have to evict them. This can be tricky, and should be left to an attorney who is experienced in evictions, unless you have the experience yourself. Be aware that if you evict people, they can become quite upset and drag the process out, as well as do damage to the property, which can cost you more money in repairs. Between the attorney costs, the eviction battle and the repairs, it can be wise to at least figure out if helping offset the tenant’s moving expenses would be less expensive and less aggravating in the long run.

Homes that are purchased at foreclosure are purchased “as is.” Since you have no idea what the condition is, it is good to be prepared for various issues. Often when the homeowner has given up because they are losing their home, they no longer keep the house in good repair. If something breaks, they do not invest in fixing it. If they are angry or in dire straits, they can damage the home further, sometimes by selling everything from bathroom fixtures to ceiling fixtures to kitchen cabinets and appliances. It is good to be aware of these issues so that you are not stunned if this happens.

Most foreclosures require the average amount of work to get them ready for rental, sale or short sale. However, it is good to be aware of the pitfalls and to talk to experts in the field who can guide and prepare you, especially on your first few deals. If you ask questions, do the research and stay aware, you can avoid – or deal effectively with – the pitfalls and still make a good profit.