Since I’m running off for the weekend this is starting off a round of guest posts and preplanned posts. To start this is a post by a new blog I’ve found call The Passive Dad. It’s written by Scott and details life in CA. I enjoyed reading his blog so go check it out. Onto his Post
Would you Purchase a Foreclosure in your Neighborhood?
In a recent Money magazine article I read, How To Buy A Foreclosed Home they described the different options for purchasing properties facing foreclosure. I’ve often thought if this is the time to purchase a rental property and look for another source of passive income. Do you know anyone who’s made the plunge?
Pre-Foreclosures
Buying a pre-foreclosure not only is a bold move, but requires persistence and a bit of sales negotiating with the homeowner. Could you pick-up the phone and call a stranger who is behind on monthly mortgage payments? I would imagine you might get hung-up several times, but you never know someone might actually listen to your offer. Investors are actually doing this and for the effort, you could be helping out a family in need and find a great property. You might also have tenants already living in the property and could negotiate a new lease.
Sheriff or Courthouse Auction
I personally would be interested to see this process live on the courthouse steps. It’s probably not what I imagine, but the prospect of a real live public auction seems fascinating. Be prepared to bring 10-15% cash to the auction as many cities require a substantial down payment. Also, you usually don’t have the ability to inspect the home and might be given the address at the last minute on the courthouse steps. I would think this is similar to car auctions, where you can see the car but you can’t drive it. Have you ever attended a live courthouse auction?
Post-Foreclosures
This is when the house is empty and sold by the bank or auction firm. The bank may have a listing agent sell and market the property and collect a sales fee. These are not short-sales, which are still owner or tenant occupied. I have wondered if it would be a wise move for a family or group of families to consider purchasing a foreclosure in the same neighborhood. Since you know your local market better than anyone else, do you have a foreclosure that looks appealing on your street? We have a short-sale and a few neighbors have discussed it. The downside is that we obviously don’t know what the real estate market will do in the next 6-12 months. The upside, we could have a handsome property at a discount and some good rental income.
Would you ever consider purchasing a foreclosure in your neighborhood?
by: Scott (The Passive Dad) can be found at his blog www.thepassivedad.com
The passive dad asks a lot of great questions. I think that the cost of homes in places like CA make it difficult to justify the risk involved with Real Estate. I hope you enjoyed his post. If so head on over and check out his blog.
6 responses so far ↓
1 tom // Aug 22, 2008 at 11:44 am
We just did for our first house… and I would again. We bought a post-foreclosure. The former owners had already purchased a new house, moved and couldn’t sell this one so they stopped payments and left.
We got our house for roughly 15% below true market value.
It was vacant for roughly a year and a half so during our inspection we had to pay to turn on all utilities. Inspections are the most important part of buying a foreclosure. Our inspector looked for any signs of sabotage in addition to normal inspection areas.
The one issue with buying foreclosures is you have to buy as-is. They will make no repairs, and may or may not negotiate on the price. The bank we bought (Countrywide… ha!) from dropped the price by 3K.
2 Jen // Aug 22, 2008 at 12:59 pm
Yes I would. We just recently brought a bank owned home for less than $20,000 the market price.
The only problem we had was that everything moved soooo slowly. It took us 4 months to make multiple offers on the same home and for the bank to get back to use. At the rate we were going, I was starting to think that the bank did not want to sell the house. Anyhow, it was a long process, but saving 20 thousands made it totally worth it.
3 MoneyGrubbingLawyer // Aug 22, 2008 at 2:25 pm
I have never bought a foreclosure myself, but have been involved in several bank sales before. From what I’ve seen, it seems like a great option- banks are generally very motivated sellers and there is little emotional or personal attachment to the property- nobody is insulted at a low-ball offer.
The only downside is as mentioned by tom - the property is strictly “as-is”. As well, many people in this position don’t take great care of their house, so houses can often be in rough shape. Even so, these drawbacks can work in your favour in further lowering the asking price.
4 SmartGirl // Aug 23, 2008 at 1:03 am
I purchased a pre-foreclosure (condo in a NYC brownstone) back in 1993. It took about six months because we had to negotiate with the primary mortgage holder, the second mortgage holder, the HOA (no HOA fees had been paid in over two years), plus pay the guy’s unpaid property taxes (over $32,000 alone).
The owner had the place on the market back in 1991 for $410,000, but had no offers. The place had sat empty for two years and the work (home improvements) were poorly done by owner. We picked up the place for $250,000 and then began a three month overhaul of the place.
Once the contractors were done, it was a wonderful home that last year sold for $1.5 million.
Would I buy a pre-foreclosure or foreclosure again? You bet. We bought a diamond in the rough, while focusing on the three most important rules of real estate: location, location, location.
So… I’m looking for that next great buy and diamond in the rough right now.
5 laughing808 // Aug 23, 2008 at 12:58 pm
I’ve never purchased a forclosed home, but I would consider. I have friends that purchased a forclosure and didn’t have any problems.
I found this guest post very interesting, I didn’t know there were more than one type of foreclosure. Thanks.
6 LAL // Aug 27, 2008 at 6:44 pm
I’m still in the maybe camp.
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