Make sure you keep an eye out for these red flags when foreclosure investing.
Purchasing foreclosed properties is often great for house flippers. You can buy the house for well under market value, and in turn, get a great deal. Generally speaking, there are three types of foreclosures: Short sales, foreclosures bought from an auction, and REOs.
While these properties are generally much cheaper than houses bought in a traditional way, they also come with a great deal of risk. When foreclosure investing, make sure you learn the risks so you can reap the rewards.
The Red Flags of Foreclosure Investing: #1-5
If you are buying a property from an auction, youâ€™ll almost never be able to see the interior of the house. This means that there is no real way to assess any problems.
However, if you are thinking about purchasing a short sale or an REO property, you will be allowed to look inside and get the home inspected. For these latter two cases, make sure you avoid purchasing a property with any of the following problems.
1. Disgruntled Previous Owners
In a traditional purchase, you will buy a property straight from the previous homeowner. That homeowner will usually try to make the house as appealing and problem free as possible before putting it on the market, so they will be able to sell it for the best price.
However, when buying a foreclosure, the previous owner does not want to give up their home. Rather, their lender forces them into it because they cannot pay their mortgage.
Sometimes, these bitter homeowners will destroy their own home before they are evicted and will leave you to clean up the mess.
Common damages include things like like excessive trash, holes in walls, and unwanted possessions. However, you might encounter a real life horror story like a home with toilets and sinks filled with cements, which would cost you thousands on all new piping.
A craftier previous homeowner might strip all of the assets of the home like fixtures and appliances. They might even steal any new cabinets or expensive countertops. If given the chance, some people will steal everything but the kitchen sink.
Make sure that you donâ€™t run into any of these problems when purchasing a foreclosure
2. Illegal Renovations
Usually, when a previous homeowner makes a renovation to their home, it is a good thing. Improvements can only add value to a home, right?
Sometimes, these renovations can be ugly, unnecessary, and even illegal. If they didnâ€™t get the proper permit to make these changes, the responsibility falls on you. Donâ€™t run into a mess of legal ramifications for an unpermitted â€œimprovementâ€.
One of the more common examples of this phenomenon is a garage being converted into a living space. The homeowner will let another person or people live in the garage to help pay the mortgage.
3. Ceiling Stains
A water stain on the ceiling, wall, or floor, usually indicates...