The Hidden Costs of Foreclosures

Purchasing foreclosed homes can yield great returns. However, there are many potentially hidden costs that you normally don’t worry about when making a traditional real estate purchase. Ignoring these issues can turn a great deal into a loss for the unsuspecting buyer. If you don’t have previous experience with foreclosures, you should take the time to be sure you understand the risks, not just the rewards associated with buying foreclosures. Here are some facts that you should be aware of.

Be sure you have thoroughly researched the value of the property. You need to assess its value in today’s market conditions, not at the price previously paid. In a traditional purchase which includes a mortgage, your lender is not likely to let you pay more than the property appraises for, but a foreclosure sale has no such restrictions.

Similarly, you are responsible for determining the property’s condition. Buying a foreclosure in poor condition is not automatically a mistake. You just need to know how much money will be involved in the renovation. Don’t forget the time factor. While you are renovating the property, you cannot rent it or sell it.

There are a myriad of insurance issues with which you must contend. If you are going to own the property outright and have no mortgage, you don’t really require insurance but it is a good idea.

You need to be certain that you have a clean title. Failure to do so may make it impossible to resell it later. In addition, there may be liens on the property and you would then be liable.

Along the lines of the title, be sure there is a valid certificate of occupancy. If there isn’t one on file with the seller get one from the local government, or failing that make an appointment for them to inspect and issue a new one.

If you plan to rent rather than sell the property be sure that the proper zoning is in effect allowing rentals. Many locales ban rentals completely, while others have minimum time periods required. Check that either the property comes with the needed rental permit, or that it is readily available, and at a fee that you can live with. There may be sales tax to pay on the rental income and it can be steep in some areas.

Be sure the property is not occupied. In some locations, it is very difficult and time consuming to evict people from their “home”, regardless of ownership.

Check with the utility companies for past due amounts. As the new owner, you will be responsible.

The same applies to unpaid taxes. They will be your burden.

Carefully review all documents associated with the purchase. If you are not experienced, it’s a good idea to hire a lawyer to advise you. At the very least, you should consult with a trusted real estate agent.

Buying a foreclosed property is often far more complicated than a making a traditional purchase. You expect extra rewards to come from the transaction so you should plan to have to make an extra effort to earn them.

Original: The Hidden Costs of Foreclosures