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Forewarning on Foreclosures

I mentioned foreclosures briefly in the last section…


They are often one of the first things that a potential investor thinks and asks about. They think they’re the best things to go after in order to get the best deal.


But the reality is that they’re pretty hard to buy and come with a lot of risk if you do manage to buy one.


First of all, many people see properties online that seem to be in foreclosure when they’re actually not. They get all excited when they see a property online that says “pre-foreclosure” or “foreclosure” that may have what seems like an absurdly low price attached to it. It’s often what the lender who is starting proceedings is owed, not what the property is worth or what it will sell for... if it ever does actually get sold.


For instance, you might see a house on Zillow that says it’s in foreclosure and has a price of $71,000. But you know that that house is really worth more like $300,000! So of course you’d want to scoop it up for $71,000. You and everyone else. And if it were that easy or that real, you’d be fighting a lot of people to buy it, and it wouldn’t end up being a deal.


So much of what you see online is not yet actually foreclosed on; it is only in default. And the owner may very well clear up the arrears or sell the property before it is foreclosed.


But if you do go after an actual foreclosure at a sheriff’s sale or auction, know that you are taking on a tremendous amount of risk. Those properties are usually sold sight unseen, in as-is condition, and you may even have to evict the owner yourself before you can even do anything with the house. (And the owners may very well do damage on their way out.)


To start out, you’re probably better off going after houses that are already foreclosed and have been put on the real estate market through a real estate agent. You can still get a better deal because banks don’t want to hold on forever just to get a little more money.


That being said, true foreclosure investors exist. It’s a good niche if you know what you’re doing and can tolerate the risk. So if you decide to go that route, make sure you know your stuff inside and out, know the risks, and can tolerate the risks and costs.

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