what are some negative aspects to this?

Question

ifi want to buy a foreclosed home what are some drawbacks?
I found a descent house for 200,000 and the neighborhood price is like 600,000 i want to buy it fix it up then sell it but what might be some hidden costs or "potholes in the ground"

Answer 1

The next door neighbor is a serial killer. That would suck.

Answer 2

If the bank already owns it, they'll ask for it what it is worth. It is only at the courthouse steps that any bids over the owed amount will buy the bank's interest in the property.

If you intend to buy the house at the courthouse steps, then don't wait for that time. Find the owner who is about to be foreclosed upon, and buy it from him. Do this for two reasons.

1 - At the courthouse steps, you buy "the bank's interest in the property". You inherit any other liens on the property. You get no title policy. "As-is" means the physical condition of the property and the title. You may pay $200,001 for a house worth $600,000 that also has over 1.000.000 in IRS liens, etc.

2 - If all that is owed on it is really the $200,000, then every investor within a couple hundred miles will also want it. If it is worth $600,000 then the bidding may go up to $575,000. That's if no investor bought it prior to that time.

Find the owner. If the house is worth way more that what's needed for him to sell with a clear title, don't insult him. There are other investors talking to him. Make him an offer that get him some cash in his pocket. Maybe ask him to counter your offer before he'll accept anybody else's.

Answer 3

Housing prices are suffering a correction right now, so take a good inventory of what you need to put into this house to make it ready for the market. Decide if it would still be worth it if the average price in the neighborhood dropped to 500k or even 450k before you were ready to sell. Consider how much of the work you can actually do yourself. Does it need extensive electrical or plumbing work that you would need to hire a professional to handle? Look at what the property taxes are currently running on the house. Just because it is selling for 200 does not mean it is appraised that low. You could be paying triple or more the taxes you should be for up to a year, until the house gets reappraised. If it is not reappraised until you have put substaintial work into it, you may be paying property tax all along as if it were a $600k house. All of this, plus the time and energy you put into it, will have to factored into the expense of fixing up the house.

Answer 4

Generally, seized property is sold "as is" (I know this is true of cars which may be perfectly fine or could be complete lemons, but the government won't provide warrantees). This means that, unless you manage to get it thoroughly inspected you don't know what problems there might be with the house. And, since it was foreclosed, the previous owners might not have had the cash to properly care for the house.

Answer 5

Most foreclosures must be purchased cash due to their condition and terms of the sale. Also, the "as is" condition is a drawback you may have C/O problems, back taxes etc. Also, when it goes to auction you will be bidding and this could easily drive up the price. You just have to be thorough as far as title searches, permit issues and physical inspections of the property. It's a great business to get into but you must have a cash source.

Answer 6

quite often the person foreclosed on can take the home back that is why its high risk and cheap to acquire. there are certain catches to these ventures.a person may have some financial problems clearup quickly and still have ownership a certain number of days has to pass before hes out of picture and that is not always disclosed careful!!!

Answer 7

I don't think there are any. When houses are forclosed, the bank just wants to get their money, so they offer a low price just to sell it fast. I think it would be a good idea to fix it up and sell it for a profit.