When I was a kid, my dad told me that he came up with a saying: “If something is too good to be true, it probably is.” Now, I learned later that he was pulling my leg, and didn’t make it up, but that proves the point. It would be too good to be true if he invented that. It was a good lesson.
It’s a lesson I’ve kept my whole life, and one I’ve carried into my business. Which is why I always have an answer at the ready when people interested in buying and rehabbing homes ask me about going after foreclosure properties. They say it is going to be a sure thing, and I ask them if it is too good to be true.
While it seems like there are no downsides to a foreclosure option, there are indeed enough that you should think twice or more about it. Let’s take a look at the pros and cons of buying a foreclosure property that you really should consider before jumping in.
Pros and Cons of Buying a Foreclosure Property
There’s a reason why foreclosure auctions are popular. It’s pretty easy to recognize their allure. And, this is coming from personal experience. I’ve bought, and—more to the point, you’ll see—tried to have bought houses from auctions before. Here are a few of their pros.
The Pros of Buying a Foreclosure Property
- It’s fast. You can put in a bid on a house, and in theory, have the winner that same day. Pending court approval, it’s your house. You’re ready to get to work.
- Huge selection. The foreclosure crisis, which in many ways is still going on, means there are still a lot of opportunities.
- Potentially low prices. Banks and cities don’t really want to hold onto empty properties. It’s not good for their bottom line or their tax base. So the prices generally start out very low and appear to be a great bargain.
- It gets the juices going. This isn’t a rational response, but bidding on things is kind of fun. I’m competitive. If you’re in this market, you probably are too. That makes auctions exciting.
But clearly, there are a lot of cons, even inside all of those pros. Indeed, there’s a bit of a poison pill in all of those that should make you really think about foreclosure risks.
The Cons of Buying a Foreclosure Property
A lot can go wrong when buying a foreclosure property. Here’s a few of them.
- It’s fast. Wait, wasn’t that a “pro”? It was, but it can also be a major con. You don’t really have time to do research and weigh things. Sometimes it works out, but sometimes it doesn’t. I’d rather act smart than act fast just for the sake of acting, you know?
- You don’t have a lot of information. You’ll have some information, and some details, but not a ton. You might not even know if there are any liens on the house. That can be a pretty nasty surprise.
- You don’t have a chance to do an inspection. Very rarely, if ever, do you get to do a real walkthrough of a home. That means you won’t be able to see all of the problems, including the things that don’t come up on meager reports. You don’t know if the floorboards are weak or the back deck is coming apart. You don’t know what’s leaking, or if there’s mold. That is some costly information.
- You don’t always get possession. Winning the bid doesn’t mean getting the house. There has to be court approval. And there is a chance the owner could get their house back if they pay off their debts. So, then you’re sitting on a house, which you’ve already paid a deposit on, and can’t do anything. That’s a waste of time and money.
- Overwhelming choice. There are a lot of auction houses there, which makes it even harder to get information. It’s frustrating, overwhelming, and can lead to either focusing on one house to the detriment of everything, or essentially playing bid roulette.
- Too much competition. You’re not the only one who thinks that auctions are a great way to fortune. Everyone and their uncle is on those foreclosure sites. That means you could focus on one house and not get it, or spread your bids and not get any of those. Who has that kind of time?
- You spend too much. Remember the part about competitive juices? Yeah, when people are bidding, and you really want a house, you start to focus too much on it. Not getting it seems like a waste. You’ve already invested time, and more than that, you’re emotionally invested. You want to win. This means you could end up paying too much.
Either way, you could pay too much. You might get a house that has more problems than it is worth. You might have to put in so much work you lose money, even if you get what appears to be an ostensibly great deal. It ends up being a lot of time, and a lot of money.
If you’re like me, you hate wasting either, much less both. That’s why I found a better way.
Make Your Investments Better By Eliminating Cons
Foreclosure auctions are one way to get a lead, but it’s often a bad way. It’s fraught with risk and could put a serious crimp in your business. A lead without information, that you’re chasing just for the sake of a win, isn’t really a lead. It’s a gamble.
I don’t like gambling with my business. So, that’s why I became an independently owned and operated HomeVestors® franchisee. This gives me unparalleled access to everyone who has seen the “We Buy Ugly Houses®” ads. You know, the ones that have been running nationally and generate leads that have led to over 100,000 houses purchased since 1996.
That means I get qualified leads from people who are motivated to sell without having to deal with lead lists. That’s really nice. I’m not making cold calls—I’m going to talk to people who have contacted me, inspect their houses, and get real information.
If you could use some qualified leads, too, contact HomeVestors about becoming a franchisee. To quote my old man, “when opportunity knocks, answer.”
Each franchise office is independently owned and operated.
HomeVestors of America® is the nation’s only real estate investing franchise, providing business opportunities to real estate and investment professionals across the nation.