Everyone loves a good bargain. No wonder people flock to garage sale. In the real estate industry, great deals usually come in the form of foreclosed homes. Experienced (house) flippers love the reduced prices, but inexperienced buyers find that the risks outweigh the benefits.
You might be wondering why experienced house flippers consider foreclosed homes a great deal. In that case, you should pay attention to the article. Hopefully, your knowledge will help you find awesome bargains.
What Is a Foreclosed Home?
Before we extoll the many benefits of foreclosed homes, let us discuss what it is. A foreclosed home is a property that underwent the foreclosure process, which started because the borrower defaulted on the mortgage, and did not take alternative steps, such as a deed in lieu of a foreclosure or loan modification.
Once the financial institution that lent the money takes possession of the property, it wants to unload as quickly as possible. They do so because if the house remains in their inventory, it will become an idle asset. Thus, it becomes a “liability” in the long run. To entice buyers to purchase the foreclosed house, the lender offers it with a significant discount.
However, if the financial institution does not hit their reserve or target auction price, they will keep the property. At this point, the lender considers this as REO, or real estate owned. Sometime, REO properties are called “bank owned”.
Financial institutions would still try to unload such properties. They will try to sell it through a real estate agent, online auction platforms, and other routes. Here are some of the pros and cons of sealing the deal:
Pros
- Competition is less stiff
- Discounted prices
- Flipping opportunities
Cons
- Cash required
- Hidden issues, such as liens
- Sold as-is, often site unseen
Are There Advantages of Purchasing a Foreclosed Home?
As mentioned earlier, banks offer foreclosed homes at a discounted rate. But remember that this is only available for an all-cash offer. If you have enough to pay for the property outright (rather than a mortgage), you could purchase the property in an online or in-person auction for a steal.
Foreclosed properties are offered way below the market price because the bank merely wants to recover the outstanding mortgage plus the fees due. If you want to start a career as a flipper, this would be an excellent investment opportunity.
Are There Disadvantages of Purchasing a Foreclosed Home?
The idea of purchasing a property that is way below its market value may seem exciting. But purchasing foreclosed homes also come with risks. Knowing them will help you assess if this investment is worth the effort.
As mentioned earlier, foreclosed homes are usually sold as-is. The lender does not have the time to inspect the general condition of the property. Many of them are not in excellent shape. If you are purchasing the property with the intention of flipping it, you may want to consider the restoration cost.
Conclusion
Like any endeavor, you must understand the pros and cons of buying a foreclosed home. By doing so, you will see whether the transaction is indeed a bargain. Thus, you can determine if you will push through with the purchase or move on to another property.
If you want to start a career in the buying of foreclosed homes in Orange County, FL and flipping them, reach out to Orlando REO Professionals. We will be more than happy to help you find the right property to invest in. Call us now for more information!