At first glance, foreclosure properties appear to offer a real bargain. That low buy-in appeals to the ole pocketbook. But when purchasing a foreclosure property, it’s buyer beware. Hidden costs may drive up your investment to well over what the property is worth after you fix it up. Avoid buying into a money pit by keeping these tips in mind.
Hidden Costs of Buying a Foreclosure Property
If an owner couldn’t keep up with the cost of their mortgage, it’s highly unlikely that they were able to keep up with maintenance on the property, too. Most likely, the house and/or its grounds need some work. Since you buy foreclosures “as is”, you may not have the opportunity to thoroughly investigate the house before you purchase it (with, let’s say, a formal home inspection, for example). Properties left vacant before selling may present even more problems. Unless you’re able to procure an inspection before you put in an offer, it’s hard to estimate how much repairs will cost.
Minimum (if any) Negotiations
With a traditional Lake Havasu home purchase, a buyer puts in an offer. Then the seller either accepts it or counters. After a bit of back and forth, the two parties agree upon a sale price. That doesn’t happen in a foreclosure situation. The bank provides little to no “wiggle room” with the price. However, before you put in your formal offer, ask your Lake Havasu REALTOR® to check out past foreclosure sales the bank successfully made. This may offer a valuable insight into whether or not they’re willing to negotiate the price down.
Flippers and other real estate investors present stiff competition when it comes to deals on properties. So, you might not be the only one putting in an offer on that foreclosure. It’s easy to get caught up in the “gotta have it” frenzy of a bidding war. To avoid paying more than the property’s worth, consider how much you are willing to spend (including repair/renovation costs). Then, stick to that number. If the price of the property puts you above that number, walk away.
In a traditional Lake Havasu home purchase, banks allow funding with little to nothing down as long as the property and buyer meet specific criteria. They tend to tighten the reigns on the funding of a foreclosure. For one thing, some of these distressed properties may not pass inspection due to their poor condition. Many investors put up all-cash offers. Banks like that. But, if you can’t afford to pay all cash for the house, coming in with more than 20% down shows banks how serious you are about buying it. Partner that with a good credit score and you have a better chance of being approved for a loan.
Finally, this seems obvious, but it’s a good reminder. Once you fix up a foreclosure, the value goes up. That’s the goal, right? With a higher value comes higher property taxes. Just be prepared to pay more to the taxman once you’re done.