Foreclosures can be excellent investments. Many real estate investors look at foreclosures before any other investment. However, a new investor may experience many problems along the way if they aren’t careful.  First time real estate investors need to educate themselves before diving in to the allure of foreclosures to avoid common first timer mistakes. 

The first common overlooked aspect of foreclosures is location, location, location! Even if purchasing foreclosures to flip for quick return, never assume below market prices on foreclosures will have a high profit when ready to sell. Look for foreclosures that are in the best location possible but the least attractive house. This will give you a better opportunity to get the highest resale value in the future.

When buying foreclosed properties you are buying them “as is”. You should never waive the home inspection, regardless how good the deal sounds.  More times than not, a foreclosure will have need repairs. With the logic that if the previous owner was having trouble making his payments, he most likely wasn’t able to keep repair and maintenance up either. A home inspection can find anything from leaking roofs, plumbing problems, mechanical or electrical issues, foundation problems and even mold or radon contamination not to mention termite infestation. This will help you as the buyer to know whether to expect large and expensive repair jobs.

After you have the home inspection completed, you will have a better idea how to negotiate the price on a foreclosed home. Considering the repairs that are needed you can come up with an offer price. Homes can depreciate quickly, even those just a few years old. Plan to budget a minimum of 10 percent of the price you paid for repairs. As you consider a foreclosure, consider the possible repairs so that you don’t over-invest in the property. Doing as much of the work your self will save you money.

In addition to the home inspection, a title search should be done as soon as possible.  You want to make sure there are no outstanding liens such as second mortgages, home equity loans or property taxes. Included in this search should be any fines or late fees as well. Make sure all these factors have been taken care of and the title is clear.

When purchasing a foreclosure, think of it as a long term investment not a quick flip investment. Houses are expected to decline in price in the future, so if you are looking for quick cash, a foreclosure is not the way for you to invest. Experienced investors that have financial resources and plenty of time are the right ones for long-term property investment that foreclosures can be.

Foreclosures can be a great investment if you do your research and homework. Or if purchasing for your own home and you can afford a fully amortized fixed-rate mortgage, consider purchasing a foreclosed property for a great deal.