Advantages And Disadvantages Of Buying Foreclosed Properties

2 min read By eCompareMo on May 11, 2020

It can be a hassle and costly to build your dream house and purchase a brand-new unit in a subdivision. Property investors and home buyers know that foreclosed properties are better to acquire instead.

If you are curious about these kinds of assets, then this article is for you. Let’s discuss the pros and cons of buying foreclosed properties that you should know before you decide to buy one.

What are foreclosed properties?

Foreclosures can happen when the titular owner fails to provide payments for the loan amortization to a lender. It also occurs when the mortgage borrower also fails to pay the real property tax mandated by the government. These are also called Acquired Assets.

As a result, the lender will acquire the borrower’s property as collateral. It gives the lender all the rights to own or place it on sale to cover the financial loss. The lenders are usually the banks or government.

Advantages of buying foreclosed properties

What are the pros of purchasing foreclosed properties? Here they are:

1. Low price

Foreclosed properties are considered distressed assets, so owners usually dispose of these properties as immediately as possible. These are sold at a lower price than the average market value or attached with discounts for interested buyers.

2. Legitimate purchasing process

Since you can acquire these assets from the government or banks, the transaction is clean. Also, banks have transparency and accountability regarding the condition and legal documents of the property.

3. Quick transfer of titles

In foreclosures, the property titles are transferred to the lender immediately, if it has no pending court cases. That means the bank (or government) takes the ownership and the inherent liabilities as soon as the property is acquired.

4. Updated taxes and utilities

If the properties are under a bank, it is guaranteed that the bank pays real estate taxes, monthly dues, and other related expenses.

5. Sell off the acquired asset at a higher price

Whether you are a home buyer or property investor, these foreclosed properties can be transformed into a home through repairs, upgrades, and renovation. This way, it increases the value of the property, which can be sold in the market at a higher price.

Cons of acquiring foreclosed properties

On the other hand, purchasing foreclosures has its disadvantages. These are:

1. Owning the property in its current state

Acquired assets are usually sold on “as is, where is” basis. It means you will buy the properties including all of its problems. Examples are damaged units or house parts and outlaws or illegal occupants on its vacant lot.

2. Titles may come with existing liabilities

Foreclosed homes may come with conflicts such as being occupied by informal settlers, existing lease, or strong refusal of the previous owner to vacate.

3. Ownership entails patience

Since buying such properties is on “as is, where is” basis, you need to take careful steps in making a decision. You need to seek professional help in determining the value of the property and how much will it cost to deal with the damages.

Moreover, if you intend to buy one, are you going to take the risks? Can you handle the illegal settlers and other problems involved?

The acquisition of a foreclosed property is not a bad deal, as long you paired it with a careful study of its potential and pitfalls. Real estate is a great investment that is quite firm even in a recession, and it can generate latent profits.