If you are in the market for a bargain and you do not mind a little work, you may want to consider purchasing a foreclosed home. Buying distressed properties such as short sales can be a great way to build equity, but it is not for everyone. Many properties are in need of remodeling and some require extensive repairs.
You need to remember there is a reason these homes are discounted. Lenders have weighed the cost of improvements versus current market value and priced these properties accordingly. You have to determine whether their discount is worth your time.
The biggest pitfall of buying a foreclosure is underestimating the cost of improvements. This is easier to do than you might think especially if you get excited about thought of prospective savings. The other hurdle to overcome is overestimating the improved value of the home. You need to be objective about value.
It might help to think of buying a foreclosure like you would if you were trying to selling a home. You want to use the most accurate data available and compare recent sales to the home you are considering. How would it measure up after your planned improvements? How much equity is left over? Is that amount worth the effort?
If you plan on doing some or all of the work yourself, you also should consider what your time is worth. Can you live in the home while the work is being completed? What is your timeframe for completion? Are you and your family patient able to tolerate the inconvenience of home repairs for that period of time?
If you would like us to help evaluate a property you are interested in, please contact us.